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United States : CFTC weighs piecemeal rules for automated trading.

The US Commodity Futures Trading Commission (CFTC) may only finish part of its first-time regulations on automated trading this year, as it delays other provisions that have drawn industry ire.

The CFTC proposed the automated trading regulations last year aiming to reduce the risks that a defective high-speed computer trading algorithm could destabilize markets or distort prices. But oil and gas companies worry the regulations are so broadly written that the use of a simple computer program could require them to meet costly new registration requirements.

CFTC chairman Timothy Massad yesterday announced he is willing to finalize the automated trading rules in phases. Massad said he wants to finalize part of the regulations to require companies to adopt pre-trade risk controls this year. Those trade controls would limit excessively large orders and add "kill switches" to shut down faulty algorithms.

The CFTC could then move on to other parts of the proposal, Massad said, such as a requirement for exchanges to reveal more about incentive programs intended to encourage companies to use their trading platforms.

The CFTC today is holding a day-long roundtable discussion in Washington, DC, to get more feedback on its automated trading rules and how they might be revised. Industry groups have been pushing the agency to change its definition of what qualifies as "direct electronic access" to exchanges, a threshold test that could trigger registration requirements.

Some commercial businesses have sought tough rules on automated trading because of concerns that some high-speed trading algorithms from competing firms can get ahead of their placed orders and force them to pay inflated prices

CFTC member Sharon Bowen said some agricultural companies have said they are considering leaving certain commodity markets because of concerns with automated trading.

"I believe we owe it to end users to finish automated trading rules this year," Bowen said.

CFTC member Christopher Giancarlo at the roundtable said the regulations were overly broad and raised security concerns, given the proposed requirement for companies to allow CFTC staff to review the proprietary source code that powers their trading algorithms. Giancarlo said the CFTC should spend more time figuring out how to adapt its existing rules to high-speed trading.

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Publication:Mena Report
Date:Jun 11, 2016
Words:375
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