The U.S. Securities and Exchange Commission is examining the exposure of stock exchanges, brokerages and other Wall Street firms to cyber attacks that have been called a threat to financial stability.
The SEC held a roundtable discussion of those risks in Washington on Wednesday as it weighs whether stock exchanges should be required to tell members about breaches of critical systems. More than half of the exchanges surveyed globally in 2012 said they experienced a cyberattack, while 67 percent of U.S. exchanges said hackers tried to penetrate their systems.
The agency also will investigate how companies are disclosing cyberthreats to investors in public filings. Businesses including Target Corp., from which hackers stole payment-card data for millions of shoppers in December, are required to disclose such threats when the information would affect an investor’s willingness to own the company’s shares.
“Cyberthreats are of extraordinary and long-term seriousness,” SEC Chairman Mary Jo White said Wednesday. “The public and private sectors must be riveted in lock step in ad-dressing these threats.”
Wednesday’s event was spurred by SEC Commissioner Luis Aguilar, who called for the agency to establish a cybersecurity task force.
“Given the extent to which the capital markets have become increasingly dependent upon sophisticated and interconnected technological systems, there is a substantial risk that a cyberattack could cause significant and wide ranging market disruptions and investor harm,” Aguilar said in opening remarks.
Companies aren’t required by the SEC to disclose all risks from cyberattacks, though the regulator routinely reviews how such threats and attacks are described in annual reports. Some lawmakers, including U.S. Sen. Jay Rockefeller, a West Virginia Democrat, have asked the agency to consider making the disclosures mandatory.
“This is information every investor has a right to know,” Rockefeller said in a statement Tuesday. “Routinely providing this information should be a regular part of practicing business in the era of ‘big data.’”
The Financial Stability Oversight Council, a group of regulators led by the Treasury secretary, said in its 2013 annual report that successful cyberattacks could pose a threat to the stability of financial markets. Among exchanges, 89 percent said cybercrime should be considered a systemic risk, according to a 2012 International Organization of Securities Commissions report.
The SEC and the Financial Industry Regulatory Authority, which oversees broker-dealers, identified cybersecurity as a priority for compliance examinations. The authority said in January that it would ask about 20 of its member firms how they manage and defend against the threat of cyberattacks.
Criminal hacking cost financial-services companies, on average, about $18.8 million in 2013, according to a study by the Ponemon Institute, a research and consulting firm. The report estimated an average cost for brokerages of $19 million, and $21.9 million for investment advisers.
Hackers targeting broker dealers may seek intellectual property such as trading algorithms or the source code of trading systems, said Richard Bejtlich, chief security strategist at FireEye Inc., a Milipitas, Calif.-based information security consultant. Manipulation of critical data systems probably poses the greatest risk to Wall Street companies whose buy-and-sell decisions and order routing are increasingly automated.
Under a rule proposed last year, exchanges would be required to promptly disclose to their broker-dealer members any breaches of critical systems. Exchanges could withhold the information if they believed release of the data would do further harm or undermine an investigation of the intrusion. The SEC expects to advance the rule this year, White said.
“If you can start changing the data that you have access to, that can potentially undermine the integrity of the system and that is where people get pretty nervous,” Bejtlich said in a phone interview.
Information for this article was contributed by Chris Strohm of Bloomberg News.
Business, Pages 25 on 03/27/2014