The U.S. Securities and Exchange Commission (SEC) is calling on securities exchanges to come up with plans for beefing up the U.S. financial market infrastructure in the wake of the three-hour trading outage caused by technical problems back on August 22.
SEC chair, Mary Jo White, met today with leaders of the various equities and options exchanges, along with the Financial Industry Regulatory Authority (FINRA), the Depository & Trust Clearing Corp. (DTCC), and the Options Clearing Corp. in order to address issues of market fragility revealed by the prolonged outage in NASDAQ-listed securities last month. The outage was sparked by the quote dissemination system becoming overwhelmed with traffic, among other problems.
Following today’s meeting, White issued a statement spelling out a series of measures designed to address the problems revealed by the trading disruption, including that the various participants should: come up with “comprehensive action plans” to ensure highly resilient and robust systems for the securities information processors (SIPs), including testing standards and disclosure protocols; assess the robustness and resilience of other critical infrastructure systems; address the issuance, effectiveness, and communication of regulatory halts; review their rules for breaking trades and procedures to reopen trading following a trading halt; and, look to implement ‘kill switches’ that would allow exchanges to shut down trading in the event of technological failures, and to review other potential risk mitigation mechanisms.
“The recommendations discussed today with regulators and key industry participants are designed to accomplish three overarching objectives: to improve the operational resiliency of our markets, strengthen interoperability standards between exchanges and market participants, and establish a clear governance and testing framework for the industry,” said NASDAQ OMX chief executive, Robert Greifeld.
“Today’s meeting was very constructive,” White said. “I stressed the need for all market participants to work collaboratively – together and with the commission – to strengthen critical market infrastructure and improve its resilience when technology falls short.” The various participants in the meeting agreed to cooperate to bolster the integrity of market systems, she said.
“In short order, I also want those at the meeting – with the input of other market participants – to identify a series of concrete measures designed to address specific areas where the robustness and resilience of market systems can be improved, including the systems that were at the core of last month’s trading interruption,” she added. “The investing public deserves no less.”
Greifeld added that, “NASDAQ has the responsibility as a market leader to take all necessary steps to ensure the integrity and reliability of the markets, and we intend to continue to do so in a highly collaborative way with the other exchanges as well as our regulators, recognizing that investor confidence is the cornerstone of a healthy market.”