Trading firms planning tech changes face tougher regulation

The Securities and Exchange Commission (SEC) is set to implement tough new regulation that would see trading firms and other financial sector players having to disclose any system failures and test computer code changes before they go live.

This news follows a string of technology failures in the financial sector, where most recently Knight Capital experienced a problem with the installation of its trading software, which resulted in it sending numerous erroneous orders in NYSE-listed securities into the market.

Nasdaq also suffered a blow when it experienced a high-profile glitch during Facebook’s much anticipated IPO, where its IPO Cross – a pre-IPO auction process that the exchange put in place in 2006 that allows traders to place orders and agree on an IPO price before the stock is officially launched – couldn’t handle the trading demand.

According to the Financial Times, which cites sources familiar with the matter, SEC chairman Mary Schapiro has asked staff to accelerate rule-writing, which would lead to the consideration of new proposals for better testing and disclosures.

The SEC staff are also considering new requirements for computer security and new responsibilities for supervisors for technology systems.

Such regulation has been debated before, where in 2004 the Government Accountability Office recommended that the SEC finalise disclosure policies. However, no action was taken.

It was revealed yesterday that a consortium of Wall Street firms would inject $400 million (£256 million) into the company in an attempt to reverse the damage caused by the glitch. Whilst, in the meantime, the New York Stock Exchange has temporarily moved its trades from Knight Capital IT systems to those of rival GETCO, stating that it was in the public interest to do so.