The U.S. Commodity Futures Trading Commission (CFTC) has extended the public comment period for proposed rulemaking changes for automated trading, known as Regulation AT. Previously, comments from the public on the proposed rules and amendments were to be accepted through 24 January 2017, but the CFTC is now extending the public comment period until 1 May 2017.
Regulation AT is designed to enhance oversight of algorithmic trading in derivatives products. Since 2015, US regulators have been trying to impose tougher scrutiny on the use of computer programmes to trade futures through a unified body of law addressing all related systems. The regulation deploys some standard tools in a bid to reduce the potential of automated trading disruptions, such as the ‘flash crashes’, where markets undergo unusually high volatility.
The new rules were first proposed in November 2015 and there was a strong response from the futures industry which felt a surge of anxiety, most notably over the ability of regulators to seize proprietary source code for electronic trading software. The CFTC said the first goal of the source code provision was to push firms to preserve it and ensure that the CFTC had access in the event of a market disruption.
The proposal was amended later to minimise the risk of disruption and other problems that can be caused by algorithmic trading, and to make sure the CFTC has the tools to deal with those problems should they occur. This required reasonable risk controls, testing and monitoring of algorithms and the preservation of source code and other records.
Industry groups request extension
Tim Massad, the outgoing CFTC chief, said last year in an interview: “The markets have fundamentally changed over the last five to 10 years. We’ve gone in the futures markets from open-outcry pit trading to fully automated, essentially — not just electronic but automated. About 70 per cent of markets is automated. The question is do we have the regulatory framework to really monitor that and understand it and make sure that these markets are operating with integrity?”
Back in December 2016, several industry groups requested the commission to extend the comment period by 180 days, “in order to accommodate the complexity of this particular suite of new automated trading regulations as well as the imminent period of transition at the Commission.”
The FIA Group, the International Swaps and Derivatives Association (ISDA), the Managed Funds Association (MFA) and the Securities Industry Association (SIFMA), among many others, said in a letter to the CFTC that the overlap of the January 24 comment deadline with the January 20 presidential inauguration “means that the current Commission will not be able to finalize the Supplemental Proposal before leadership changes likely result in a newly constituted Commission.”
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