In a 3-0 vote, the Commodity Futures Trading Commission decided to officially propose Regulation Automated Trading.
The next step for the controversial proposal will be for CFTC staff to enter it into the Federal Register, which will commence a 90-day comment period for the proposed regulation.
“This proposal provides some common-sense risk controls that I believe embrace the benefits that automated trading has brought to our markets, while also protecting against the increased possibility of breakdowns and disruptions that come with it,” CFTC Chair Timothy Massad said before the CFTC vote. “We encourage – and welcome – public comment, which will carefully be taken into account before we take any final action.”
In fact, the CFTC proposal contains 150 questions that the CFTC hopes will elicit comments from the industry.
Chair Massad attributes the approximate 500-page bulk of the proposed regulation to the list of questions that appears twice, along with the regulation’s preamble, cost-benefit analysis, analysis for the Paperwork Reduction Act, and regulatory flexibility analysis. “The rule itself is only 19 pages,” he noted.
Timothy Massad, CFTC
Although CFTC Commissioners Christopher Giancarlo and Sharon Bowen voted to advance the rule proposal, there are still questions regarding whether Regulation AT’s benefits will outweigh the additional costs, and what burdens that it would bring to the market and its participants, especially smaller market participants.
Some of the requirements of the proposal appear to be window dressing, according to Giancarlo. “That is especially the case in its requirements for development and implementation of risk controls and related testing standards that the industry already widely adopted.”
Commissioner Giancarlo’s concerns over Reg AT’s requirement for registrants hold their proprietary source code in data repositories available for inspection by the CFTC and U.S. Department of Justice lead to an energetic conversation between the CFTC commissioner and Vince McGonagle, director of the Division of Market Oversight at the CFTC, and then Sebastian Pujol Schott, associate director of the Division of Market Oversight at the CFTC.
The CFTC’s McGonagle ended the exchange reminding Commissioner Giancarlo that the CFTC routinely receives confidential information as part of its regular business practice and that the CFTC “would need to be ever vigilant with respect to those responsibilities.”
CFTC Commissioner Bowen then suggested that the industry see Regulation AT as a beginning rather an endpoint.
“I’m sure with the ferocious rates of change of technology, we will need to update this regulation regularly to account for those changes,” she said. “In many ways, this regulation is nearly the first step in a process. It is more of a starter home rather than a two-storied one.”
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