Securities and Exchange Commission chairman Mary Schapiro is calling for tougher regulation on automated trading systems in a bid to combat the risks of algorithmic-generated volume surges and hacking.
In a speech to the Securities Industry and Financial Markets Association (Sifma) compliance and legal society seminar, Schapiro argued that in the wake of 6 March flash crash, rules on electronic trading must be revisited.
Following the flash crash, the SEC set up a joint advisory committee with the CFTC. Last month this group offered recommendations for exchanges, traders and clearing houses in a bid to reduce the risks associated with high-frequency trading.
However, Schapiro is now calling for more stringent rules, arguing that the Automation Review Policies (ARPs) introduced by the SEC nearly 25 years ago in the wake of "Black Monday" should become more than mere policy statements.
The non-binding ARPs set out expectations that market participants would acquire the right technology and assure its functionality and that firms would undergo an annual independent review and notify of system outages and material changes.
Says Schapiro: "Today, with risks including algorithm-generated volume surges and malevolent hackers still very much with us, I believe the SEC should consider making ARP compliance mandatory. Such a regulation would require market participants to meet adequate standards for the capacity, resiliency, and security of their automated systems. These rules could apply to exchanges, alternative trading systems handling appreciable volume, clearing agencies, depositories and securities information processors."
You can read the speech in full here.