[ by Larry Goldfarb ]

The glitches and the monumental trading failures that impacted the exchanges and major trading firms recently have compelled the SEC to put in place a new rule which speaks directly to these trading issues.  In a speech Tuesday at American University's Washington College of Law, Elisse Walter, the acting Chairman of the U.S. Securities and Exchange Commission offered details for the first time on the rules, which are being developed in response to a string of high-profile technology errors last year.  Those debacles include NASDAQ's botched handling of the Facebook initial public offering and Knight Capital's $440 million losses due to a software error.

Walters noted the major provisions of the rule which will require specified firms to notify the SEC if a trading glitch occurs and provide full blown testing to ensure that it does not re-occur.  She noted two major imperatives of the rule which she said will try to eliminate the causes of uncontrolled electronic trading, not just the problems, by concentrating on compliance and integrity:

• The rule applies to alternative trading systems and clearing agencies to provide notifications about systems disruptions and meet certain technological standards, as well as perform business continuity testing.
• These Entities could be punished if they fail to comply with any such tighter compliance rules.

The SEC's proposed rules would replace a long-time voluntary standard known as "automation review policies" or ARP. In addition to converting the voluntary guidance into enforcement rules, the SEC is also considering whether to expand the program to apply to other entities, such as broker-dealers, advisers and dark pools. 

For further details, go to  [Reuters, 2/19/13].