Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...
By Richard Hill
Nov. 2 — The CFTC is considering backing off from its proposal to give its staff nearly unfettered access to the proprietary computer software that drives high-speed trading, a source with knowledge of the matter said.
The agency currently must obtain a subpoena to access the codes. Under its 2015 proposal to regulate automated trading, staff, with some limits, could request the codes from a firm for inspection anytime.
One possible change to the proposal the commission may consider when it meets Nov. 4 would limit who has the authority to request the codes, according to the source, who declined to be identified.
This procedure, known as a “special call,” is already used by the agency to obtain trader data. The director of the Division of Market Oversight has the authority to issue a special call and the decision isn’t subject to a commission vote, a former CFTC official said.
The commission also may tweak proposed registration requirements to bring fewer firms under commission oversight, the source told Bloomberg BNA Nov. 2. Under the proposal, firms with direct electronic access to an exchange would be required to register. The commission is considering adding an additional qualification, the source said. The person didn’t provide any details but said the qualification would be notable.
In a third possible amendment to the proposal, the commission is considering reducing pre-trade risk controls from three tiers of controls to two—one at the exchange level, and another at either the trader or futures broker level. Chairman Timothy Massad signaled the change at an industry gathering in October.
All three aspects of the 2015 proposal have seen pushback from the high-speed trading industry, which uses complex algorithms to execute thousands of trades per second.
The source code provision has encountered particularly intense opposition. Trading firms are concerned that the codes would be vulnerable to theft and hacking if the CFTC is allowed to collect them without a subpoena. Narrowing the parameters to a special call is unlikely to satisfy the industry, which says the subpoena process adds the most protection.
Subpoenas can be challenged in court, with the result that their scope is often limited, Michael Ryan, executive vice president and general counsel for Trading Technologies International Inc., told Bloomberg BNA. The court might limit the amount of code that has to be turned over, or limit the number of staff with access, he said. TTI provides software that enables traders to build custom trading algorithms.
Former CFTC Commissioner Bart Chilton said the best system is to require a subpoena and then have staff inspect the code at the firm, so it never leaves the trader’s premises. “I’m not saying the government shouldn’t look at these things. But it’s got to be a really high hurdle, and it’s got to be under a protected system,” he said in a phone interview.
To contact the reporter on this story: Richard Hill in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Phyllis Diamond at email@example.com
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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)