The SEC on Wednesday approved requiring large-volume equity exchanges, alternative trading systems and dark pools to submit to the agency backup operational plans in case those venues' technological systems break down.
The rule, Regulation Systems Compliance and Integrity, or Reg SCI, also will require scheduled operational testing to ensure those backup plans work, and venue operators will be required to inform their participants of systems issues.
Not all trading venues will be subject to the new regulation. A statement from SEC Commissioner Kara M. Stein said 44 venues will be required to abide by the new rules, leaving out 4,400 broker-dealers, 32 ATS trading equities and 43 ATS trading fixed income and other non-equity securities.
“The recommendation focuses on larger volume platforms” and does not cover smaller equity platforms or those trading fixed income, said SEC Chairwoman Mary Jo White in a separate statement. “The staff's recommendation is risk-based, covering the overwhelming majority of equity market activity on trading platforms that enables the commission to concentrate its regulatory and examination resources where they will best protect investors,” Ms. White said, adding that “the benefits of applying Regulation SCI to the fixed-income markets are … comparatively low.”
All self-regulated exchanges will be subject to the rules, according to the regulation posted on the SEC’s website. Also subject will be ATS that trade at least 5% in any single stock or 1% or more in all NMS-regulated stocks, both of the average reported daily dollar volume, over four of the previous six months.
In a separate statement, Commissioner Michael S. Piwowar said the rule was “tailored to allow the commission to achieve its goal of promoting systems compliance and integrity, without inflicting unnecessary costs and burdens on market participants.”
The regulation will go into effect 60 days after publication in the Federal Register, and venues subject to Reg SCI must comply nine months after the effective date.
