By Richard Hill
Outgoing CFTC Commissioner Sharon Bowen said Sept. 25 she is “very concerned” that U.S. rules governing high-frequency derivatives trading will lag behind European regulations.
EU rules slated to become effective in January will include “robust” oversight of computerized trading, Bowen said in a speech in Washington. If the U.S. doesn’t respond “in kind,” she said, it could incentivize high-frequency traders to come to this country to skirt tougher rules overseas, moving “more of their risky practices to our shores.”
The Commodity Futures Trading Commission proposed rules to regulate automated trading in 2015. A major barrier to their adoption is a provision that would allow the commission to obtain from traders the proprietary codes that drive their computers.
One of the provision’s most vocal critics is CFTC Chairman J. Christopher Giancarlo, whose opposition could put the entire proposal in jeopardy. As a commissioner in 2016, Giancarlo called the so-called source code provision a threat to liberty and security that, if adopted, would probably be challenged in court.
In her final remarks as a member of the agency, Bowen—whose last day is Sept. 29—said the proposal “strikes the appropriate balance” between encouraging innovation by firms and protecting the markets. “It is not hard to imagine the resulting detriment to the markets caused by an algorithmic trading system gone unchecked,” she said.
Bowen also said that "[a]t this point,” rules proposed five years ago governing clearinghouses and trading platforms need to be reproposed. At the same time, the proposal contains “good, thoughtful, common sense” approaches to governance, Bowen said, including requiring annual reports and a regulatory oversight committee.
She also said the agency needs more money to carry out its oversight responsibilities. “Two-hundred and fifty million dollars for an agency that oversees a $400 trillion swaps markets does not add up.”
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