Regulation SCI – Systems, Compliance and Integrity

August 16, 2013

David Lauer reveals his secrets as a former high speed trader to CNN Money.

When asked what the technological arms race has done to the markets he answers, “I think it’s negatively affected the markets significantly”.

“I’m a technologist. This is very strange of me to say,” he continued. “You know, this was my business for a long time. But when you see metrics of market quality that have not been improving then you have to question – what is this investment going to?”

When pressed to give an example of practice he finds predatory he describes ‘quote stuffing’, a tactic where one party floods the market with quotes and then retracts them, which benefits those players with the most powerful technology who can best process the event.  Lauer equates quote stuffing to a denial of services attack like hacking. (Its pervasiveness is documented in this paper by Egginton et. al. which he cites.)

A second CNN Money clip puts Lauer in a head-to-head dialogue with Jamil Nazarali, a senior managing director at Citadel.

In a more substantive article posted with the TABB Forum Lauer discusses Regulation SCI (Systems, Compliance and Integrity) proposed by the SEC in March which he calls this the most important regulation since Regulation NMS (National Market System).

According to the SEC’s fact sheet “Regulation SCI is intended to reduce the chance of technology problems occurring in the first place and ensure that key entities are well-positioned to take appropriate corrective action if problems do occur.”


2 Responses to “Regulation SCI – Systems, Compliance and Integrity”

  1. Yuval Says:

    Martha, thanks a lot! That debate there is so important. It has regulatory implications (e.g. it reveals a fundamental clash in the perceptions of ‘what is the market’) and sociological-theoretical ones (e.g. what is homos economicus – a utility maximizing one, regardless of technological environment or a device-bound actor?)

  2. […] should at least comply with the the SEC’s rules regarding system compliance and integrity (SCI), the EMEA guidelines for algorithmic trading systems, the ISO 9000 algorithmic trading standards […]

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