Archives: Securities Exchanges

Earlier this week, the New York Stock Exchange halted trading for nearly four hours due to a technical “glitch”.  While the shutdown caused a lot of uncertainty among investors and ruffled some feathers on Wall Street, there are some important takeaways for securities practitioners.

This was a reminder of the importance of data security.  The NYSE is one of the most secure systems on the planet, yet is still obviously susceptible to technical problems.  While there is still no clear explanation on what caused the glitch (a software update rolled out the day before is currently taking the blame), this should serve as a wake-up call that you can never be too confident in your data systems, and should be on guard for these types of technical issues, with an action plan should something like this happen to you.

Going forward, it will be interesting to see if regulators get more involved on the technical side of trading.  Certainly, Wednesday’s NYSE glitch caused issues for traders, which are certainly the types of issues that regulators hope to avoid.  Keep a close watch for any policy revisions or increased oversight in the wake of this week’s trading halt on the NYSE, as they are likely to follow.

One SEC commissioner is pushing for a comprehensive review of the structure and regulatory regime of United States financial markets, including SROs.

The SEC is serious about looking comprehensively at market structure issues, and must be willing to review its existing rules to see their impact on market structure.  One item is the regulatory framework concerning the status of SROs, given the proliferation of dark pools and alternative trading venues.

In short, the SEC will examine market structure to see if changes are necessary.

A senior Congressman has indicated that he wants to see a wide-ranging pilot program to examine different minimum spreads for different stocks.  He believes that such a program would allow the SEC to determine if tick sizes in equity markets are appropriate.

Tick sizes are increments whereby a stock price may move, and, currently, that size is $0.01.  Other global markets have different values.  This senior Congressman wanted a large number of stocks in the program to provide enough data, and he wanted the review completed by the end of this year.  There is no indication that this study is currently being conducted.

Nonetheless, at least theoretically, it presents an interesting possibility for real market change if taken seriously.

Statements by certain United States Senators have indicated that they hope the SEC is cracking down on and scrutinizing the activities of the national securities exchanges and associations.

Such statements were made after the SEC’s fine of $5 million fine against NYSE. The SEC had previously announced that the NYSE agreed to pay $5 million to settle claims over its alleged compliance failures in 2008 surrounding certain front-running allegations.  The NYSE, of course, settled the SEC’s charges without admitting or denying any wrongdoing, and indicated that it improved its systems with updated technology.

Initially, these senators complained that it was too low, but they did indicate this was a first step, and was important as a symbolic move.  It was their belief more should come from the SEC in regulating securities exchanges and associations.  Certain lawmakers have also indicated that this sanction may initiate a process where these national securities exchanges and associations may re-think their “for profit” models.  Finally, one senator in particular has suggested that Congress should re-think the SEC’s funding to allow it do more in this regard.

No one should hold their breadth waiting for more money from Congress, however, it will be interesting to see if the SEC follows up on this action with others over the next year.