On June 25th, the Commodity Futures Trading Commission (CFTC) withdrew the proposed Regulation Automated Trading (Reg AT) and approved a proposed rule on Electronic Trading Risk Principles.

The proposed “Risk Principles” focus on three concepts, including; (1) safeguards aimed at the mitigation of market disruptions associated with electronic trading, (2) pre-trade controls for electronic orders and (3) exchange responsibility to promptly notify the Commission of significant disruptions on their electronic trading platforms.

The Risk Principles pivot away from the prescriptive proposals in Reg AT such as the requirements to register traders and to designate certain entities as “AT Persons.” Further, the CFTC dropped its proposal to access a firm’s proprietary source code. In his remarks, Commissioner Brian Quintenz stated that the latter was a “significant, and likely unconstitutional overreach.”

The CFTC noted that the proposed Risk Principles are covered by existing CFTC regulations, including regulations related to the prevention of market disruptions and financial risk controls. While the Risk Principles may not necessitate the adoption of additional measures by designated contract markets (DCMs), the CFTC believes the proposed Risk Principles will help ensure that DCMs continue to monitor these risks as they evolve along with the markets and make reasonable modifications as appropriate. Lastly, the Commission emphasized that these Risk Principles reflect a flexible framework under which DCMs can adapt to evolving technology and markets.

Commissioner Dan Berkovitz stated that “the Proposed Rule recognizes the need to update the Commission’s regulations to keep pace with the speed, interconnection, and automation of modern markets.”

As a champion for the safety and soundness of the financial markets and a provider of trade surveillance and market risk solutions, Eventus fully supports the CFTC’s decision to advance sound electronic trading risk principles enhancing investor protection.

 

Electronic Trading Risk Principles

The proposed Risk Principles include the following requirements for DCMs:

  1. Adopt rules governing participants subject to its jurisdiction to prevent, detect, and mitigate market disruptions and systemic anomalies associated with electronic trading.
  2. Implement exchange-based pre-trade risk controls for all electronic orders.
  3. Promptly notify CFTC staff in the event of a disruption on the exchange’s electronic platform and provide the CFTC with information about mediation efforts or resolution of such disruption.

Public comments on the Risk Principles are due on or before the latter of August 24th or 30 days following publication in the Federal Register.

 

To view an archived webcast of the meeting, click HERE.

To read the Commission’s notice of proposed rulemaking, click HERE.

 

Eventus Systems is a leading global provider of multi-asset class trade surveillance and market risk solutions. Its powerful, award-winning Validus platform is easy to deploy, customize and operate across equities, options, futures, foreign exchange (FX), fixed income and digital asset markets. Validus is proven in the most complex, high-volume and real-time environments of tier-1 banks, brokerages, futures commission merchants (FCMs), clearing firms, trading firms, market centers, buy-side institutions and corporates. The company’s rapidly growing client base of more than 60 firms relies on Validus and Eventus’ responsive support and product development teams to overcome its most pressing regulatory challenges. For more, visit www.eventussystems.com