Compliance

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Ivy Schmerken
Ivy Schmerken
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Tweaking Reg SCI, 5 Points of Contention

The SEC’s proposed Regulation SCI is intended to protect market technology from outages and technical glitches. But industry commentators contend the rule doesn’t include all market participants and underestimates the implementation costs. Here are five areas that market participants would like to change.
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The SEC has proposed Regulation SCI (Systems Compliance and Integrity) to combat the string of technical glitches that have plagued US stock and options markets. Reg SCI would require key market participants to have comprehensive policies and procedures to ensure their systems operate in the manner intended. While Reg SCI would apply to national securities exchanges, significant alternative trading systems (ATSs), clearing agencies and plan processors, it skips brokers not operating ATSs. One of the major objections from the comment letters is that Reg SCI would not have prevented Knight Capital's software induced trading loss that spewed erroneous orders for 45 minutes. And Reg SCI doesn't require that firms have kill switches.

Definition

Some commentators argue that Reg SCI is too broad and that the scope of "SCI events" needs to be narrowed. An SCI event includes disruptions, compliance issues and intrusions. Some commentators argued that systems disruptions events should be limited to those with a "material impact on the market," according to a summary by attorneys with WilmerHale LLP. Some events captured by the current definition, such as smooth rollover to a backup system or queuing of data or message in a system, wouldn't merit reporting.

 

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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IvySchmerken
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IvySchmerken,
User Rank: Author
11/27/2013 | 3:47:38 AM
re: Tweaking Reg SCI, 5 Points of Contention
Market participants support Reg SCI in theory, but in practice, many feel it's it's too specific and detailed. Others say it's not broad enough and should pull in all broker dealers and HFT. But given the string of technical malfunctions that has occurred in equity and options markets, they are agreeing that something needs to be done.
Becca L
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Becca L,
User Rank: Author
11/26/2013 | 8:16:19 PM
re: Tweaking Reg SCI, 5 Points of Contention
The discussion keeps coming back to the same point - this piece of well-meaning legislation does not accomplish what it set out to do. It doesn't even seem like the financial community is opposed to the spirit of the law, they just want to get it right, which makes this debate different from many others that see opposition simply because of the burdens in compliance.
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