SEC Members Urge Including Brokers in Trading Safeguards 

U.S. rules meant to guard against breakdowns in automated trading systems should be expanded to include brokerages that match orders away from regulated stock exchanges, according to two Securities and Exchange Commission members.

Luis A. Aguilar and Kara M. Stein, both Democrats, have called on SEC Chair Mary Jo White to apply the new requirements to wholesalers such as Citadel Securities LLC and KCG Holdings Inc. (KCG), which collectively execute as much as 19 percent of shares traded.

The proposal, passed in March 2013, seeks to limit technology breakdowns at venues handling stock, option and bond trades. It would require coordinated tests to show exchanges can recover from natural disasters or terrorist acts, and regular reviews of backup systems.

Supporters of extending the requirements to brokers cite the failures of Knight Capital Group Inc., an automated trading firm that lost $450 million and almost went bankrupt after a software error in August 2012 caused it to enter millions of faulty trades in less than an hour.

The SEC’s work began after the stock market tumult of May 6, 2010, when the Dow Jones Industrial Average (INDU) suddenly dropped 9.2 percent before quickly recovering.

The requirements would cover systems that control trading, market data and surveillance. The plan also calls for security requirements for secondary systems that, if breached, could allow a hacker to access an exchange’s core systems.

 

Source: bloomberg- SEC Members Urge Including Brokers in Trading Safeguards

---