The only exception is ATSs that trade only municipal securities or corporate debt securities are excluded.
SCI Plan Processors
Includes any entity that meets the definition of Rule 600(B)(55) of Reg NMS, which is defined as “any self-regulatory organization or securities information processor acting as an exclusive processor in connection with the development, implementation and/or operation of any facility contemplated by an effective national market system plan.”
The SEC received no comments on the proposed definition of “plan processor.” As noted in the SCI Proposal, the ARP Inspection Program included the systems of the plan processors of four national market system plans, which are the CTA Plan, CQS Plan, Nasdaq UTP Plan and OPRA Plan.
SCI Exempt Clearing Agencies subject to ARP
Currently, there is only one entity that meets this definition, which is “an entity that has received from the SEC an exemption from registration as a clearing agency under Section 17A of the Act, and whose exemption contains conditions that relate to the SEC’s Automation Review Policies (ARP), or any SEC regulation that supersedes or replaces such policies.”
What’s Next
Regulation SCI does not cover all participants that can have an impact on the overall market as a result of system issues. The SEC has the important – and challenging – task of figuring out how Reg SCI should be adapted or expanded to cover these entities. SEC Chair Mary Jo White stated that in the future the SEC may extend some types of requirements in Regulation SCI to additional categories of market participants, such as broker-dealers and transfer agents.
In this respect, it is a strategic move for entities and market participants who are not currently subject to the regulation to stay informed on the requirements of Reg SCI and keep their systems operating under similar regulatory circumstances. The rules cover establishing written procedures and policies, participating in scheduled testing, taking action with respect to SCI events, and conducting reviews. Furthermore, there are required responsibilities when it comes to recordkeeping, electronic filing of Form SCI, and access. For many firms, testing is often done without documenting the steps. Recordkeeping and documentation addresses the need for a more formalized system of testing.
The key take away here is that systems and operations oversight by regulators is increasing. Every market participant would be wise to examine their internal processes to ensure they can comply with these regulations as they evolve and expand.
List of key resources/further reading/areas of interest:
Comments on Reg SCI
http://www.sec.gov/comments/s7-01-13/s70113.shtml
The regulation itself
http://www.sec.gov/rules/final/2014/34-73639.pdf
2012 roundtable transcript
http://www.sec.gov/news/otherwebcasts/2012/ttr100212- transcript.pdf
2012 roundtable webcast
http://www.sec.gov/news/otherwebcasts/2012/ttr100212.shtml
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A First Look at Regulation System Compliance and Integrity
