May 20, 2010
Washington, D.C. (May 20, 2010) – The Commodity Futures Trading Commission (CFTC) yesterday approved the reestablishment of a Technology Advisory Committee (TAC), which is charged with keeping the Commission abreast of new technologies that will assist the independent federal agency to better oversee the derivatives markets. Commissioner Scott D. O’Malia, the newest Commissioner, confirmed last October, was selected to serve as Chairman of TAC for its two-year term.
“The market events of May 6th clearly highlight that technology drives the structure and function of the markets. Trades now take place in milliseconds and will soon take place even faster. We must develop a deep understanding of technological innovation and what it means for the markets we oversee. Therefore, I am pleased that the Commission has agreed to my request to reinstate this Committee,” stated O’Malia, who has pushed for the creation of the Committee since his appointment.
The Commission’s original TAC ceased operation when its, chapter expired in 2005. Since that time, technology has become increasingly important to participants in the derivatives markets—by providing participants with market information, trade modeling, trade execution, risk management and back office support.
“The Commission has been in a perpetual game of technological catch-up. Put simply, we learn of technological innovation after the fact and are left to consider the impact of trading methodologies, such as high frequency trading, after it has had a widespread effect on the markets,” continued O’Malia.
The TAC will be comprised of up to 25 members that will represent a wide range of technology expertise in the financial markets. Unlike previous advisory committees, TAC members will be requested to submit papers from a wide range of topics to inform the Committee before the first meeting is called. The TAC will consider issues such as algorithmic and high frequency trading, improvements to real time and post trade transparency, and technological surveillance and compliance. The TAC will advise the agency on the need to implement rules to support the Commission’s mission.
The reestablishment of the Committee is timely, given recent market events and the debate that is underway in Congress regarding major financial reform. The proposed legislation would give the Commission vast new authorities, including surveillance of over-the-counter markets, estimated to be 10 times the size of existing regulated markets. Debate in the Senate on such legislation is expected to come to a close in coming days. The 1,400 page bill would then need approval of the Senate before it could be reconciled with the House version, passed in December.
“The TAC is immediately relevant and will put forth technological ‘best practices’ for oversight and surveillance. It will enable the Commission to have a role in technological innovation and adoption as it occurs in the markets, not afterward,” added O’Malia.
The Committee will have a two-year term, during which the Committee will conduct public meetings, receive written recommendations from its members and the public and submit reports to the Commission that will inform the Commission of its technological opportunities and the need for regulation to support the Commission’s mission.
Stephen M. Humenik
Office of Commissioner Scott D. O’Malia
R. David Gary
Last Updated: May 20, 2010