U.S. equity and options exchanges, facing a deadline from regulators to figure out how to make markets more reliable, said they’ve developed a framework for preventing breakdowns and responding better to failures.
The exchanges “have come to general agreement on certain recommendations and preliminary implementation timetables,” according to a statement today, which didn’t provide specifics. The companies said they will reveal more information in future rule filings with the U.S. Securities and Exchange Commission.
The exchanges’ statement was in response to an order from SEC Chairman Mary Jo White on Sept. 12 that exchanges collaborate on fixing their infrastructure within 60 days, made during a meeting with bourse officials in Washington. The exchanges said today that they’ve identified potential improvements in five areas, including the stock market’s main public data feeds, which came under scrutiny after Nasdaq OMX Group Inc.’s own system failed on Aug. 22.
“What I’m expecting to receive are very concrete suggestions with timelines with the five issues we identified,” White told Bloomberg TV’s Peter Cook today during an interview.
While U.S. stock trading is spread across more than 50 venues, NYSE Euronext and Nasdaq OMX run the only exchanges where companies can list their shares in the U.S. As a result, they are also the only companies responsible for running the data feeds that provide stock prices to the public, systems known as securities information processors.
Nasdaq’s SIP malfunctioned on Aug. 22, halting trades for thousands of U.S. companies for three hours and spurring White’s demand for improvements. Exchanges plan to propose that Nasdaq’s feed be run by a separate operating company, similar to a structure used by NYSE Euronext, according to a person familiar with the matter who asked not to be named because the plan isn’t final.
The change is intended to focus accountability for the SIP on one entity that would have clearly defined standards for running it, the person said.
Wayne Lee, a Nasdaq spokesman, declined to comment.
The exchanges have developed recommendations to change how they respond when malfunctions or other incidents require a trading halt, according to their statement today. They also agreed to principles for reconciling rules among equity and options markets for canceling trades and said they’re continuing to develop “kill switches” to limit harm due to technology failures.
Rule proposals addressing trade halts and kill switches are expected to be filed with the SEC by the end of the year or early in 2014, according to the person familiar with the matter.