SEC weighs fixes after trading technology debacles
In the wake of Nasdaq's fumbling of the Facebook IPO (NASDAQ:$FB)and Knight Capital's rogue algo that lost the firm hundreds of millions of dollars, the SEC is cracking down. In a set of rules created by regulators, exchanges and other trading platforms must test for potential software errors that could unleash havoc on the markets.
In a speech at The American University's Washington College of Law, U.S. Securities and Exchange Commission Chairman Elisse Walter said the rules will require exchanges, alternative trading systems and clearing agencies to notify the market of any systems disruptions, meet certain technological standards, and perform business continuity testing.
The SEC says firms could be punished for failing to comply with these new compliance rules once they become enacted.
"We saw how automated markets and computer-driven trading can go awry when technical issues in Knight Capital's trading and routing software caused it to erroneously establish positions in nearly 150 stocks, ultimately costing the company $440 million," Walter said in media reports of his speech.
The days of deploying an untested algorithm just might be coming to a close. Has your software been stress tested lately?
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