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By Sarah N. Lynch
WASHINGTON (Reuters) - The newest member of the U.S. Securities and Exchange Commission urged regulators on Friday to study the issues surrounding this week's Nasdaq OMX <NDAQ.O> trading halt before rushing to finalize market structure reforms.
"The commission must use the information we learn from these trading disruptions to become a smarter, more effective regulator," said Michael Piwowar, a Republican who is an economist by trade and previously worked at the SEC studying markets.
All trading on Nasdaq, the second-biggest U.S. stock exchange, was halted on Thursday shortly after midday.
Nasdaq said the problem stemmed from a connectivity issue between an exchange participant and the system that receives all traffic on quotes and orders.
Piwowar, who was sworn into office last week, said the SEC "should re-evaluate the assumptions" underlying the SEC's proposed rules targeting the integrity, security and soundness of exchanges' systems "before moving forward with further rulemaking."
Those reforms, proposed in March and known as "Regulation Systems Compliance and Integrity" or Reg SCI, would hold exchanges, clearing agencies and certain "dark pool" trading venues more accountable for taking steps to prevent potential outages, cyber attacks and other technical problems.
SEC Chair Mary Jo White said late on Thursday that she would call a meeting with exchange officials to discuss a regulatory path forward and also press ahead on finalizing the reforms.
If adopted, the reforms would replace the current regulatory model in which exchanges rely on voluntary guidance to address security and stability issues with their systems.
The proposal calls for exchanges to report major systems disruptions and conduct testing on an industry-wide basis to ensure they have backup systems that are functioning properly.
The exchanges, including the Nasdaq and rival NYSE Euronext <NYX.N>, parent of the New York Stock Exchange, have called for a major reworking of the proposal.
The exchanges cited a number of concerns, including costs and an "unduly broad" requirement to disseminate information to member firms about certain incidents.
Piwowar said it may take time to gather all of the facts about this week's market disruptions and noted that: "These events raise fundamental investor protection questions."
(Reporting by Sarah N. Lynch; Editing by Karey Van Hall, John Wallace and Carol Bishopric)