OTC Link ATS is now a Regulation SCI Entity

Under the SEC’s new Systems Compliance and Integrity Regulation (Regulation SCI), which became compliant effective on November 3, 2015, OTC Link ATS is now considered a higher-volume equity ATS and SCI entity. OTC Link ATS is the OTC Markets Group’s alternative trading system. It facilitates electronic trading for the markets administered by the OTC Markets Group: the OTCQX, the OTCQB and the OTC Pink. Together, these three OTC market places list over 10,000 securities and include many well-known names such as Heineken, Volkswagen, and BNP Paribas.

Regulation SCI is in response to the increasing reliance of the U.S. securities markets on information technology systems and the potential disruption that failures of these systems could cause. On September 16, 2013, options market trading was halted for approximately 20 minutes due to a systems issue with the Options Price Reporting Authority (OPRA), the securities information processor for options market information that disseminates option quotation and last sale information to market data vendors. And on October 30, 2014, a network hardware failure caused a temporary shut down of the Consolidated Tape System, Consolidated Quote System, and Options Price Reporting Authority data feeds at the NYSE’s primary data center.

Regulation SCI is a far-reaching document, ranging over 700 pages, which establishes a number of mandates. It defines SCI entities taxonomically as ‘certain self-regulatory organizations (including registered clearing agencies), alternative trading systems (ATSs), plan processors, and exempt clearing agencies.’ It requires such SCI entities to establish written policies and procedures… to ensure that their systems have levels of capacity, integrity, resiliency, availability and security adequate to maintain their operational capability and promote the maintenance of fair and orderly markets. SCI entities must also involve their broker-dealer members and other SCI entities in system testing and devise and share disaster recovery plans. SCI entities are now bound to correct SCI events and to notify the SEC of such events. SCI events include, but are not limited to, systems disruptions, systems compliance issues, and systems intrusions.

SCI entities must now also share information about SCI events with other SCI entities and members. Their systems must be reviewed by objective, qualified personnel at least annually. And they must submit quarterly reports to the SEC regarding completed, ongoing, and planned material changes to their SCI systems together with records regarding all material information pertaining to those systems. These are all welcome changes that will bolster the security and resilience of the markets infrastructure. Including OTC Link ATS under the Regulation SCI purview is a timely reminder that over-the-counter markets do matter.

For more information or to view the entire OTC November Newsletter visit: http://www.otcmarkets.com/content/doc/OTCNewsletter/November2015Newsletter.html

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