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Opening Statement at the SEC Open Meeting

Commissioner Daniel M. Gallagher

March 7, 2013

Thank you, Chairman Walter. I’d like to join my colleagues in thanking the staff for their work on this proposal. In particular, I’d like to thank David Liu, Heidi Pilpel, and Yue Ding for all of their hard work during recent weekends and late nights and early mornings.

I am particularly gratified to see this proposal come before the Commission today, as Commission action in this space is long overdue. The Commission’s Automation Review Policy program, which the rules being proposed today would supersede and replace, was developed as part of the Commission’s response to the October 1987 market break and set forth in two Commission policy statements issued in 1989 and 1991. For over two decades, in the absence of any further formal guidance on the part of the Commission, the voluntary participants in the ARP program have had to rely solely on staff guidance. Over the last ten years, there has been much attention paid to the ARP program, including a GAO review and related Congressional interest, leading to a general consensus that a rulemaking was necessary. Indeed, when I was in TM, we tried to prioritize this rulemaking so we could provide guidance that would carry the full weight of the Commission’s authority. Four years later, I’m pleased to have the opportunity to vote to propose rules that would accomplish this goal.

As regulators, we must always be cognizant of the impact — both intended and unintended — that our work has on market participants and the markets as a whole. The automated systems that are the subject of today’s rule proposal did not arise in a vacuum; instead, they are in part the industry’s response to SEC regulations that have placed an emphasis on the importance of trading speed and market data. I am pleased to see that this proposal expressly recognizes the impact of these rule changes.

I am also pleased that the Commission is proposing a safe harbor for SCI entities and their employees that will further incentivize the creation of controls designed to enhance industry compliance with the federal securities laws. After all, this entire exercise is about strengthening systems controls and promoting adherence to, and accountability under, the federal securities laws. Given the amazing complexity of today’s trading systems and the myriad laws and rules that touch upon the operation of those systems, the Commission should place its emphasis on encouraging good behavior and adherence to industry standards. Proposed Regulation SCI appropriately focuses on such providing encouragement, rather than on creating a hindsight game of “gotcha” in which market participants are subjected to strict liability for problems arising in incredibly complex systems notwithstanding their good faith efforts to maintain full compliance with the new rules.

Today’s proposal marks a significant step forward in ensuring the integrity of our markets and protecting investors, and I am pleased to be able to support it. I have no questions.

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