Investment Company Institute
October 31, 2003
Mr. Jonathan G. Katz
Re: Commission Policy Statement on Business Continuity Planning for Trading Markets (File No. S7-17-03)
Dear Mr. Katz:
The Investment Company Institute1 appreciates the opportunity to comment on the Securities and Exchange Commission's policy statement on business continuity planning for trading markets.2 The Policy Statement sets forth basic principles that the Commission expects self-regulatory organizations operating trading markets ("SRO Markets") and electronic communications networks ("ECNs") to apply in their business continuity planning.
The Institute has several comments on the Policy Statement, in particular, regarding the timeframe and process for the resumption of trading following a "wide-scale disruption."3 Specifically, the Institute recommends that the resumption of trading following a wide-scale disruption should not begin until all securities in all markets can resume trading. We are concerned that resuming trading in a piecemeal manner could be very disruptive to the markets, and confusing to market participants as well as investors. In addition, such a resumption could lead to certain difficulties for funds (e.g., relating to fund pricing for funds in which only a portion of its holdings have resumed trading).
The Policy Statement also states that the Commission has been exploring with the securities markets the possibility of establishing mutual back-up arrangements. We believe that such arrangements may prove beneficial if, for example, a catastrophic event caused an extended closure of one market. Nevertheless, the Institute believes that certain technical issues must be considered in connection with such arrangements, the most significant of which is the stock symbols that would be used by the alternative market. For example, in the event of an extended closure of the NYSE, if Nasdaq were to back-up trading in NYSE securities and trade those securities using four-character Nasdaq symbols, such trading could cause problems for data vendors and securities firms whose systems may be unable to properly process these symbols. We therefore recommend that if mutual back-up arrangements are established between markets, the back-up market should be required to use the closed market's unique stock symbols (i.e., in our example above, the three-character NYSE symbols).
Finally, the Institute recommends that the Commission strongly encourage data vendors and securities firms to implement business continuity plans and apply the principles in the Policy Statement to those plans as soon as practicable, to ensure the proper functioning of the markets in case of a wide-scale disruption. The Policy Statement states that the Commission believes that the establishment of a next-business day resumption goal for the SRO Markets and ECNs should serve as a useful resumption benchmark for securities firms as well, and that the decision by a broker-dealer to risk capital or provide brokerage services on an ongoing basis is a matter of business judgment. Nevertheless, without participation by data vendors and broker-dealers who are adequately prepared to handle the resumption of trading, it would be extremely difficult for the securities markets as a whole to perform efficiently following a wide-scale disruption.
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The Institute appreciates the opportunity to comment on the Policy Statement. Any questions regarding our comments may be directed to the undersigned at 202-371-5408.
cc: Annette L. Nazareth, Director
Paul F. Roye, Director