Stock exchange IT failures probed

Regulators to examine NASDAQ, NYSE and BATS

The US Securities and Exchange Commission (SEC) is investigating computer system failures at electronic exchanges, it has been reported.

The SEC investigation focuses on US exchanges, with last year's "flash crash", hacking attacks and other trading glitches being considered in the investigation, the Financial Times has reported.

The SEC and the Commodity Futures Trading Commission (CFTC) blamed an automated trade execution system for the stock market flash crash that affected trading worldwide.

According to the two agencies, the automated trade execution system flooded the Chicago Mercantile Exchange's Globex electronic trading platform with a large sell order that caused the Dow Jones Industrial Average to plunge by almost 1,000 points in a half hour, wreaking havoc on an already stressed market.

In March, the SEC said that exchanges would face new rules governing the technology they used. Mary Schapiro, SEC chairman, said at the time, new rules "would require market participants to meet adequate standards for the capacity, resiliency and security of their automated systems".

The widespread use of automated algorithmic trading platforms by exchanges has helped speed trades but has concerned some that security and trade reliability could potentially be affected.

Last year, two Norwegian day traders were handed suspended prison sentences and fines for market manipulation after outsmarting the trading system of Timber Hill, which is a unit of US-based Interactive Brokers. The two men managed to work out how the computerised system would react to certain trading patterns. This allowed them to influence the price of low-volume stocks for their own gain.

For its investigation the SEC will look at the systems in place at the Nasdaq, the New York Stock Exchange, BATS Global Markets, Direct Edge, and a number of others.

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