September 9, 2013
We have witnessed a fundamental shift in markets from human-based trading to highly automated electronic trading. Automated trading systems, including high frequency traders, enter the market and execute trades in a matter of milliseconds without human involvement. Electronic trading makes up over 91 percent of the futures market. The swaps market also is moving toward electronic trading.
In our oversight of U.S. derivatives markets, both futures and swaps, the Commodity Futures Trading Commission (CFTC) must look to continually adapt our regulations in these changing times. Our mission to promote transparency, ensure for market integrity and prohibit abuses is just as important in the fast-moving world of electronic trading as it was when people traded over the phone, in a pit or on a floor.
The CFTC already has taken a number of important steps to keep pace with rapidly evolving 21st-century markets. We have adopted rules to implement pre-trade risk filters for futures commission merchants, swap dealers, designated contract markets and swap execution facilities. We also have new rules to prohibit disruptive trading practices and other market abuses.
In publishing this Concept Release, we are seeking public input on what additional risk controls and system safeguards are appropriate given this ever-changing technological environment. Traditional risk controls and system safeguards, many of which were developed according to human speed and floor-based trading, must be evaluated in light of new market realities.
Further, as sure as computers and programs have had technical glitches in the past, we must look to risk controls and system safeguards to protect markets when such glitches inevitably occur again. This Concept Release is intended to stir public discussion and debate on how best to protect the functioning of markets for the benefit of farmers, ranchers, merchants and other end users who rely on markets to hedge risk -- particularly in light of the reality that the majority of the market is using automated trading systems.
Last Updated: September 9, 2013