SEC plans to beef up high-speed trading regulations

By Megan R. Wilson - 02/25/13 02:47 PM ET

Federal regulators are moving to increase protections against blips in high frequency trading, such as the one that spooked Wall Street in 2010.

Securities and Exchange (SEC) Chairman Elisse Walter has been on tour this month, touting a plan to reel in the automated trades that have been known to cause glitches in the stock market. The regulations, called Reg SCI, would transform voluntary guidelines drafted in the wake of the 1987 crash into mandatory rules.

“Rather than just trying to reduce the impact of these disruptions, we’re trying to eliminate the causes by focusing on systems compliance and integrity,” said Walter at a speech at American University School of Law on Feb. 19.

Reg SCI stands for “systems compliance and integrity,” and would require participants to test and study their systems for detecting problems on exchanges and to notify the regulator of any issues.

At a recent SEC Speaks conference, Walter said there is no timeline for issuing the rules, but the agency would seek comments from the industry before they become final.

The measures are part of a broader effort to protect exchanges from disruptions and errors, which plagued the system last year. In April, the SEC will roll out two other “circuit breaker”-type mechanisms, aimed to improve and build upon the ones implemented after the 2010 “flash crash,” which caused a sudden and short-lived 1,000-point drop in the Dow Jones Industrial Average.