Sunday, February 13, 2011

Key Senator Asks SEC to Investigate How Hacking Can Disrupt Exchange Trading Platforms

In the wake of a breach of NASDAQ computer systems by hackers, Senator Robert Menendez (D-NJ) asked the SEC to investigate the extent to which hacking can disrupt trading platforms at national exchanges and what steps can be taken to prevent that. In a letter to SEC Chair Mary Schapiro, the Senator, a leading member of the Banking Committee, also urged the SEC to review policies concerning when exchanges and other trading companies are required to publicly report information on security breaches, and what the effects of the timing of such revelations are on both criminal investigations and markets.

Nasdaq OMX Group has acknowledged that, over the course of the past year, hackers of unknown origin repeatedly tried to break into its network, specifically Directors Desk, a program that allows corporate board members and executives to exchange non-public information. Sen. Menendez said that this disturbing information raises several pressing questions that the SEC should follow up on in coordination with other government agencies and private companies that are key players in the financial markets.

He asks the SEC to report the steps it is considering taking in coordination with the Department of Justice, Department of Homeland Security, and state Attorneys General to conduct a prompt and thorough investigation of the breach in the network at Nasdaq to find out who breached the network and bring them to justice. He emphasized that there must be serious consequences for causing disruptions to financial markets through hacking and cyber-crime.

More generally, Sen. Menendez urges the Commission to investigate the extent to which hacking can disrupt trading platforms and what steps can be taken to prevent that. Although Nasdaq’s trading platform was reportedly not affected by this particular example of hacking, he has a much broader concern about the implications of this data security breach for market trading and future financial crises. The financial crises and the flash crash of last May have taught that the US should be prepared for the next financial crisis by having regulations and procedures in place for potential market disruptions. Security breaches by either hackers trying to gain private information for insider trading or terrorists trying to cause market disruptions is a potential source of future financial crises.

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