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U.S. SEC's investor advocate to study cyber security threats
06/30/2014 Email this story  |  Printable Version

By Suzanne Barlyn

June 30 (Reuters) - The U.S. Securities and Exchange Commission's new investor advocate's office will study efforts by the agency and other market participants to protect investors from cyber security threats, it said in a report issued on Monday.

The Office of the Investor Advocate will review initiatives by the Financial Industry Regulatory Authority, stock exchanges and alternative trading systems, the office said. It will also look at the potential impact of a proposed SEC rule that would require new technology standards and compliance rules for market participants.

"As markets and financial services have become increasingly automated, investor protections have not kept pace with technological evolution," the office said in the report, titled "Report on Objectives" for fiscal year 2015."

It was the first-ever report by the Investor Advocate. The 2010 Dodd-Frank financial reform law mandated formation of the office at a time when the SEC was under attack for numerous failures. Among them was its failure, despite numerous red flags, to detect Bernard Madoff's multibillion-dollar Ponzi scheme before it unraveled in late 2008 during the credit crisis.

Nearly four years would pass, however, before the office would open for business. In February, the SEC named securities lawyer Rick Fleming as its first investor advocate. Fleming was previously deputy general counsel for the North American Securities Administrators Association, an organization of state securities regulators, and deputy general counsel for the Office of the Kansas Securities Commissioner.

Fleming reports directly to the agency's highest official, Chair Mary Jo White.

Dodd-Frank requires Fleming's office to file two reports with Congress each year.

The investor advocate's plan to study cyber security measures comes at a time when Wall Street and regulators are nervous about cyber threats and other technology-related disruptions. They have included "technological 'glitches' and other anomalies with investors subjected to large price swings without economic justification," according to the report.

In February, FINRA said it would look at the measures brokerages are taking to protect their businesses and customers from cyber security threats.

That followed cyber attacks affecting millions of customers of well-known retailers such as Target Corp and Neiman Marcus..

The study by the investor advocate's office will take place during the SEC's fiscal 2015 year, beginning in October, according to the report.

Other issues the office will study include the fairness of markets to investors and "whether individual investors are abandoning the equity market because they are wary of it," according to the report. (Reporting by Suzanne Barlyn; Editing by Steve Orlofsky)


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