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Aguilar Expects More Oversight of Self-Regulatory Organizations

October 29, 2013

SEC Commissioner Luis Aguilar said that he expects the agency to continue its more aggressive stance toward self-regulatory organizations. In a speech at the Securities Litigation and Regulatory Enforcement Seminar, he said it was important for the SEC to ensure the SROs were performing their primary duties as market regulators.

The SEC will likely continue to take a stronger stance against self-regulatory organizations that fall short in their responsibilities as regulators of the marketplace, said SEC Commissioner Luis Aguilar in a speech on October 25, 2013.

Speaking at the Securities Litigation and Regulatory Enforcement Seminar in Atlanta, Aguilar highlighted a few recent enforcement actions involving SROs, including a $10 million penalty against NASDAQ and $6 million fine for the Chicago Board Options Exchange. He pointed to these as examples of what the market could expect from the SEC in the future.

“Exchanges fulfill an important role in our capital markets, and their failures undermine investor confidence in our markets and regulatory structure,” Aguilar said. “As such the commission must continue to hold them accountable when they do not live up to their primary duties as regulators.”

Market disruptions, such as the NASDAQ platform outage in August that halted trading for three hours, are unacceptable, Aguilar said. That’s why the SEC proposed Regulation SCI which, he said, would “require SROs and other entities to, among other things, establish, maintain, and enforce written policies and procedures reasonably designed to ensure that their systems have sufficient capacity, integrity, resiliency, availability, and security.”

In March, the SEC proposed in Release No. 34-69077, Regulation Systems Compliance and Integrity, to subject exchanges and broker-dealers to heightened supervision of their computer systems and trading technology. The need for such a regulation, Aguilar said, is long overdue.

“You would think that such regulations would already be in place. The recent market events underscore that a voluntary system is woefully insufficient to protect investors and the integrity of our markets.” He added that the rule should eliminate the “safe harbor,” in which an entity may skirt liability by showing they have “loosely-defined policies” that are designed to comply with Reg SCI.

Much has been made of SEC Chairman Mary Jo White’s insistence that the agency secure more admissions of guilt in enforcement cases, rather than relying on the “neither admit nor deny” policy. Aguilar said the SEC will seek admissions of guilt in cases where a large number of investors were harmed or put at risk, or where defendants were brazen in their defiance of the law or the SEC’s investigation.

“Requiring admissions in these cases will appropriately sanction defendants for their misconduct and will go a long way toward enhancing the deterrence message of our settlements,” he said.