Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...
Sept. 9 — The Commodity Futures Trading Commission hopes to propose rules this fall on risk controls for automated derivatives trading and standards addressing cybersecurity at critical entities, Chairman Timothy Massad said Sept. 9.
The agency also remains on track to act on a pending proposal addressing margin for uncleared swaps by the end of the year, and likely “will have more to say” about position limits in the coming months, Massad said in a speech to the Beer Institute in Washington.
The proposals on electronic trading will stem from a concept release issued by the agency in 2013, Massad told reporters after the speech. That release sought comment on installing risk controls and safeguards for electronic trading programs, which by that time made up more than 90 percent of the marketplace
Massad said the proposals are “to make sure there are adequate risk controls at all levels, and to minimize the chance that algorithmic trading can cause disruptions or result in unfairness.”
The cybersecurity proposals will address derivatives exchanges, clearinghouses, swap data repositories and other “core infrastructure[s]” of the derivatives industry, Massad said. They are meant to ensure that those entities “are doing adequate evaluation” of risks posed by vulnerabilities in their cyber systems, including by testing their cybersecurity and operational risk measures.
The proposed standards will be principles-based and aim to ensure the infrastructures are following best practices, according to Massad. “The concerns include information security, physical security and business continuity and disaster recovery,” the chairman said.
The CFTC proposed rules for margin requirements on swaps traded directly between banks, manufacturers and other firms—i.e., non-centrally cleared trades—almost a year ago, largely mirroring those proposed by U.S. banking regulators. Since then, the CFTC has worked with its foreign counterparts to harmonize their proposals in order to avoid the potential for regulatory arbitrage.
Uncleared trades present a certain element of risk because no central counterparty stands between the parties to the transaction, protecting them from the possibility of a default by the other.
Meanwhile, the CFTC proposed a rule in 2013 to require position limits for 28 physical-commodity agricultural, energy and metals contracts and their economically equivalent swaps.
After reopening the initial comment period once, the agency has found itself grappling with the issue of how to define bona fide hedging—trading strategies designed to mitigate commercial risk for derivatives end-users, which might be exempt from position limits. “We understand it is vital for commercial end-users to be able to continue to engage in bona fide hedging,” Massad said. “We recognize hedging strategies are varied and complicated.”
Massad also said the CFTC is “looking at changes” to a related proposal on aggregation of positions by affiliated entities.
Massad told reporters after his remarks that despite being down to only three commissioner, “we'll still be able to get our work done” on the proposals expected in the fall. At the same time, he acknowledged that the lack of two members “obviously it makes it a little harder.”
To contact the reporter on this story: Richard Hill in Washington at mailto:%firstname.lastname@example.org
To contact the editor responsible for this story: Phyllis Diamond at mailto:%email@example.com
Massad's speech can be seen at http://www.cftc.gov/PressRoom/SpeechesTestimony/opamassad-27.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)