SEC Proposes New Technology Standards for Key Market Participants


On March 7, 2013, the SEC proposed Regulation SCI (“Reg SCI”), which would replace existing voluntary standards applicable to securities exchanges, clearing agencies and certain other market participants with enforceable rules intended to better insulate trading markets from vulnerabilities posed by technology issues. Reg SCI addresses systems, compliance and integrity. The SEC believes the rule will protect investors and promote fair and orderly trading markets by assuring that all computer, network, electronic, technical, automated, or similar systems that impact trading markets (i) operate as intended, (ii) comply with all securities laws and regulations, and (iii) have adequate capacity, integrity, resiliency, availability, and security. The proposed rule targets those systems, whether in production, development, or testing, that directly support trading, clearance and settlement, order routing, market data, regulation, or surveillance. The rule would formalize, build upon, and make mandatory many provisions of the SEC’s voluntary Automation Review Policy (ARP), which have developed since ARP’s was first published in 1989.

As currently drafted, the proposal applies only to SCI Entities, defined specifically as: self-regulatory organizations (SROs), certain large volume alternative trading systems (i.e., dark pools and electronic communications networks, defined in the proposal as “ATSs”), plan processors, and exempt clearing agencies (of which there is presently only one). SCI Entity SROs include all national securities exchanges registered under the Securities Exchange Act of 1934, as amended, registered securities associations, registered clearing agencies, and the Municipal Securities Rulemaking Board (MSRB). Most SROs have already been voluntarily following the ARP guidelines, with many also participating in the SEC’s ARP Inspection Program. ATSs, however, were not covered by ARP. ATSs would become SCI Entities if they: (i) have NMS stock dollar volume comparable to SROs covered by proposed Regulation SCI or (ii) trade non-NMS stocks, municipal securities, and corporate debt securities and play a significant role in the market for such securities. SCI Entity “plan processors” would include any SRO or securities information processor acting as an exclusive processor in connection with the development, implementation and/or operation of any facility contemplated by an effective national market system (NMS) plan. The Commission is seeking comment on whether to extend the proposal’s reach to other entities.

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ropes & Gray LLP | Attorney Advertising

Written by:


Ropes & Gray LLP on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.