By Sarah N. Lynch
WASHINGTON (Reuters) - U.S. regulators are poised to adopt new rules that would require stock exchanges and some larger trading platforms to take steps to protect against market disruptions such as technology glitches or natural disasters.
The Securities and Exchange Commission's rule, slated for a public vote later Wednesday morning, was sparked by a series of major blunders over the past several years, from Nasdaq OMX's (O:NDAQ) botched handling of Facebook's (O:FB) initial public offering to the shutdown of the stock market during Hurricane Sandy.
The SEC's rule, known as "Regulation Systems Compliance and Integrity" or Reg SCI for short, would replace the current regulatory model in which exchanges rely on voluntary guidance to address security and stability issues with their systems.
It will require exchanges, certain alternative trading platforms including some "dark pool" venues, and several self-regulatory groups to establish and enforce policies to ensure their systems are resilient and secure.
Under the new rules, they will also be required to conduct annual reviews for compliance and submit them to senior management for feedback.
The rule was first proposed in early 2013, but efforts to complete it were dogged by disagreements on Wall Street and at the SEC over its scope and some of its provisions.
Stock exchanges and some SEC commissioners were upset that the initial plan did not capture more large broker dealers who match investors' orders internally.
They pointed to the near-collapse of Knight Capital, a brokerage that experienced a technological glitch and suffered a $461 million loss, as an example for why more firms should be covered by the rule. Knight was later rescued by Getco, and is now known as KCG Holdings (N:KCG)
In addition, SEC Democratic Commissioner Luis Aguilar had previously raised concerns about whether the rule had enough teeth and went far enough toward holding exchanges and their top executives accountable.
In prepared remarks Wednesday, Aguilar said the final rule has come a long way since then, and that he is glad it has been tightened to include a minimum set of testing standards and a requirement for management to review the annual compliance reports.
He also said SEC Chair Mary Jo White is planning to prepare future rules to cover a broader swath of market participants and he hopes those measures "will be acted upon promptly."
(Reporting by Sarah N. Lynch; Editing by Meredith Mazzilli)