The Securities and Exchange Commission has extended the public comment period for the proposed Regulation SCI, a slate technology-related initiatives intended to ensure financial market stability.

Regulation SCI (the acronym for stands for “systems, compliance and integrity”) would require “entities essential to the smooth functioning of the U.S. securities markets,” including exchanges and clearing houses, to have comprehensive policies and procedures in place to maintain and secure their technology. It would require that: systems have adequate capacity, integrity, resiliency, availability, and security; operate in the manner intended; and are well-positioned to promptly take appropriate corrective action when problems arise.

The Commission originally requested that comments on the rule proposal be received by May 24. That deadline has now been extended to July 8, allowing 105 days of comment.

Among those who pushed for the extension was Sen. Mike Crapo (R-Idaho). “A rule proposal that is so technological in nature – and with such potential impact to the systems and functions of our nation's securities markets – requires careful consideration and contemplation of alternative approaches,” he wrote. 

Crapo said many of the market participants affected by the rule have expressed a need for additional time to consider the proposal and submit responses to more than 200 questions posed in the release.

Triggering the push for new regulations has been an ever-expanding list of market meltdowns and disruptions. During the “flash crash” on May 6, 2010, nearly $1 trillion in market value evaporated in minutes when an automated trading glitch resulted in irrational price swings for more than 20,000 trades. In August 2012, Knight Capital Group suffered a $440 million trading loss in less than an hour when automated trading similarly went haywire. A weather-related disruption, Superstorm Sandy, led to the closing of U.S. exchanges.

Most recently, on May 17, Andarko Petroleum saw its stock price plummet from $90 to $0.01 per share in a manner of seconds as a result of a flash crash blamed on high-frequency trades.

Regulation SCI would build upon measures the SEC already has in place to minimize market disruptions, among them “circuit breakers” triggered by erratic trading and a new limit-up/limit-down mechanism to pause trading when markets move too far, too fast. Those measures, being phased in, failed to prevent the Andarko incident, however.

Regulation SCI formalizes a voluntary program for exchanges and other self-regulatory organizations known as the Automated Review Policy Inspection Program (ARP), which promotes best practices for preventing technology errors and mitigating the fallout when they occur. Standards created under ARP, however, are limited because the program is not established through the Commission's rulemaking process. 

Reg SCI would require covered entities to:

Establish, maintain, and enforce written policies and procedures reasonably designed to ensure that its systems have adequate levels of capacity, integrity, resiliency, availability, and security.

Take timely corrective action in response to systems disruptions, systems compliance issues and systems intrusions.

Inform its members or participants about systems problems and the progress of corrective action.

Designate certain individuals or firms to participate in the testing of business continuity and disaster recovery plans at least once annually, and coordinate testing with other entities on an industry- or sector-wide basis.

Maintain and preserve records relating to the matters covered by Regulation SCI, and provide them to the Commission upon request. All required written notifications and reports to the Commission will be made electronically using a proposed Form SCI.

Conduct an annual review of its compliance with Regulation SCI, and submit a report of the annual review to its senior management and the SEC.

Comments on the proposal may be submitted online, through the Federal eRulemaking Portal, and by e-mail. All submissions should refer to File Number S7-01-13. The Commission will post all comments online.