CFTC Open Meeting on Supplemental Reg AT Proposal
Commodity Futures Trading Commission
Open Meeting
Friday, November 4, 2016
Key Topics & Takeaways
- Approval of Supplement NPR: The Commission voted 2-1 to approve the supplemental notice of proposed rulemaking for Regulation AT.
- Giancarlo Opposition: Commissioner Giancarlo argued that the proposal is “at odds” with the U.S. government’s efforts to the prevent the Chinse from implementing new cybersecurity laws that could force technology companies to give up their own proprietary source codes. He also raised concerns about property owner rights and the protection of source code information.
- Future Pilots: Commissioner Bowen suggested that the CFTC consider instituting pilot programs in small segments of the market to assess the effects of additional and more substantial restrictions on algorithmic trading.
Participants
- Timothy Massad, Chairman
- Sharon Bowen, Commissioner
- Christopher Giancarlo, Commissioner
- Sebastian Pujol, Division of Market Oversight
- Marilee Dahlman, Division of Market Oversight
- Joseph Otchin, Division of Market Oversight
Commissioner Statements
Chairman Timothy Massad, Commodities Futures Trading Commission
In his statement, Chairman Massad commented that automated trading now dominates the markets the Commodity Futures Trading Commission (CFTC) oversees, with the markets fundamentally changing even as businesses of all types continue to depend on them to hedge routine risk and engage in price discovery. He stressed that businesses need these markets to function efficiently, free from manipulation or disruption, but that CFTC regulations have not kept up with the modern markets.
Massad stated that the CFTC must be able to engage in adequate surveillance of modern trading, and must enhance its ability to receive and analyze data. He said the supplemental notice of proposed rulemaking being considered would be a principles-based approach that would minimize disruptions and ensure that the CFTC has the necessary tools to respond when they do occur. He continued that changes to the proposal based on stakeholder feedback would seek to protect the confidentiality of source code.
Commissioner Sharon Bowen
Commissioner Bowen said this proposal is “merely a first cut,” and that she has doubts about whether the CFTC is doing enough to ensure all market registrants are given a level playing field. She suggested that the CFTC consider instituting pilot programs in small segments of the market to assess the effects of additional and more substantial restrictions on algorithmic trading.
Commissioner Christopher Giancarlo
Commissioner Giancarlo was critical of the supplemental proposal, raising concerns about the protection and confidentiality of source code. He said that if the CFTC is serious about confidentiality, then the regulation should include heightened protections regarding the treatment, return or destruction of source code. He further argued that the proposal would strip property owners of due process rights to protect their property, calling it a “giant lurch backwards in undoing Americans’ legal, civil and constitutional rights.” He contended that the special call process provides the CFTC with an end-run-around the subpoena process, and lamented that there is no restriction on sharing source code with the CFTC’s Division of Enforcement.
Giancarlo also argued that the proposal is “at odds” with the U.S. government’s efforts to the prevent the Chinse from implementing new cybersecurity laws that could force technology companies to give up their own proprietary source codes.
Staff Presentation
Sebastian Pujol, Division of Market Oversight, said the supplemental proposal would help modernize the CFTC’s regime to keep pace with evolving markets and focuses on registration, testing, supervision, transparency, and trade risk controls. He added that it tightens the process for access to source codes by the CFTC, and limits staff access to source code to either subpoena or special call.
Marilee Dahlman, Division of Market Oversight, stated that the requirement for two levels of risk controls reduces the possibility of a trading disruption. Joseph Otchin, Division of Market Oversight, then discussed the volume-based registration requirements, which requires persons with an average of 20,000 trades per day to register as a Regulation AT person. He explained that this is in response to concerns that the original notice of proposed rulemaking would have required too large a population to register with the CFTC.
The Commission voted 2-1 to approve the supplemental notice of proposed rulemaking for Regulation AT.
For more information on this meeting, please click here.
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Commodity Futures Trading Commission
Open Meeting
Friday, November 4, 2016
Key Topics & Takeaways
- Approval of Supplement NPR: The Commission voted 2-1 to approve the supplemental notice of proposed rulemaking for Regulation AT.
- Giancarlo Opposition: Commissioner Giancarlo argued that the proposal is “at odds” with the U.S. government’s efforts to the prevent the Chinse from implementing new cybersecurity laws that could force technology companies to give up their own proprietary source codes. He also raised concerns about property owner rights and the protection of source code information.
- Future Pilots: Commissioner Bowen suggested that the CFTC consider instituting pilot programs in small segments of the market to assess the effects of additional and more substantial restrictions on algorithmic trading.
Participants
- Timothy Massad, Chairman
- Sharon Bowen, Commissioner
- Christopher Giancarlo, Commissioner
- Sebastian Pujol, Division of Market Oversight
- Marilee Dahlman, Division of Market Oversight
- Joseph Otchin, Division of Market Oversight
Commissioner Statements
Chairman Timothy Massad, Commodities Futures Trading Commission
In his statement, Chairman Massad commented that automated trading now dominates the markets the Commodity Futures Trading Commission (CFTC) oversees, with the markets fundamentally changing even as businesses of all types continue to depend on them to hedge routine risk and engage in price discovery. He stressed that businesses need these markets to function efficiently, free from manipulation or disruption, but that CFTC regulations have not kept up with the modern markets.
Massad stated that the CFTC must be able to engage in adequate surveillance of modern trading, and must enhance its ability to receive and analyze data. He said the supplemental notice of proposed rulemaking being considered would be a principles-based approach that would minimize disruptions and ensure that the CFTC has the necessary tools to respond when they do occur. He continued that changes to the proposal based on stakeholder feedback would seek to protect the confidentiality of source code.
Commissioner Sharon Bowen
Commissioner Bowen said this proposal is “merely a first cut,” and that she has doubts about whether the CFTC is doing enough to ensure all market registrants are given a level playing field. She suggested that the CFTC consider instituting pilot programs in small segments of the market to assess the effects of additional and more substantial restrictions on algorithmic trading.
Commissioner Christopher Giancarlo
Commissioner Giancarlo was critical of the supplemental proposal, raising concerns about the protection and confidentiality of source code. He said that if the CFTC is serious about confidentiality, then the regulation should include heightened protections regarding the treatment, return or destruction of source code. He further argued that the proposal would strip property owners of due process rights to protect their property, calling it a “giant lurch backwards in undoing Americans’ legal, civil and constitutional rights.” He contended that the special call process provides the CFTC with an end-run-around the subpoena process, and lamented that there is no restriction on sharing source code with the CFTC’s Division of Enforcement.
Giancarlo also argued that the proposal is “at odds” with the U.S. government’s efforts to the prevent the Chinse from implementing new cybersecurity laws that could force technology companies to give up their own proprietary source codes.
Staff Presentation
Sebastian Pujol, Division of Market Oversight, said the supplemental proposal would help modernize the CFTC’s regime to keep pace with evolving markets and focuses on registration, testing, supervision, transparency, and trade risk controls. He added that it tightens the process for access to source codes by the CFTC, and limits staff access to source code to either subpoena or special call.
Marilee Dahlman, Division of Market Oversight, stated that the requirement for two levels of risk controls reduces the possibility of a trading disruption. Joseph Otchin, Division of Market Oversight, then discussed the volume-based registration requirements, which requires persons with an average of 20,000 trades per day to register as a Regulation AT person. He explained that this is in response to concerns that the original notice of proposed rulemaking would have required too large a population to register with the CFTC.
The Commission voted 2-1 to approve the supplemental notice of proposed rulemaking for Regulation AT.
For more information on this meeting, please click here.