CFTC Reopening Comments on Automated Trading Proposal

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By Richard Hill

May 27 — The Commodity Futures Trading Commission is reopening the comment period for several controversial parts of its 2015 proposal to regulate automated trading, it said May 27.

The news signals that the agency has heeded industry concerns that the proposal could sweep up too many firms and needlessly require traders to store their computer's source codes for possible CFTC inspection.

Specifically, the agency is looking for more input on:

  •  the definition of “direct electronic access”;
  •  quantitative measures that might be used to define an automated trader;
  •  compliance with the proposed regulation when using a third-party's trading system; and
  •  requiring automated traders to give the CFTC access to their source codes in some circumstances.


Agency staff also will hold a roundtable discussion June 10 to discuss those aspects of the proposal, which was issued in November (227 SLD, 11/25/15). The comment period will reopen that same day and run through June 24.

100 Firms

Regulation AT could capture up to 100 firms that use computer algorithms to trade with their own funds and have direct electronic access to exchanges. (227 SLD, 11/25/15). Traders defined as “automated trading persons” under the proposal would have to register as floor traders and would be subject to certain risk controls and other requirements.

Several industry groups have told the CFTC in comment letters that it should narrow the definitions in the proposed rules to avoid requiring too many firms to register (52 SLD, 3/17/16). Intercontinental Exchange Inc. said in a March 16 letter that the proposal should be revised to capture “a limited and discrete set of market participants.” The proposed definition for AT person is far reaching and would capture too many market participants, ICE said. House Agriculture Committee Chairman Michael Conaway (R-Texas) also has criticized the breadth of the proposal (28 SLD, 2/11/16).

The source code provision of the proposal also has proven to be controversial. It would require AT firms to store their computer codes in a repository for possible inspection by the CFTC. The Investment Adviser Association, the Securities Industry and Financial Markets Association's Asset Management Group and Commissioner J. Christopher Giancarlo have objected to the proposal, saying the valuable codes could be vulnerable to hacks or leaks.

SIFMA Encouraged

Laura Martin, managing director and associate general counsel of SIFMA AMG, told Bloomberg BNA May 27 that the group is encouraged by the comment period and roundtable developments. Many of the risks the CFTC is trying to regulate against already are addressed by exchanges and futures brokers, she said. “We hope that the review of alternatives leads the CFTC to leverage those measures without imposing unnecessary, duplicative costs on end-users,” Martin said.

The Futures Industry Association also told Bloomberg BNA May 27 it welcomed the CFTC's actions and would participate in the roundtable and submit additional comments.

To contact the reporter on this story: Richard Hill in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

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