September 12, 2013
I would like to welcome our TAC members, members of the Subcommittee on Automated and High Frequency Trading, and other guests. I thank you all for joining us here. Our discussion today will include three panels: (1) SDR data harmonization, (2) the Commission’s recently published Concept Release on automated trading, and (3) SEF registration and compliance, and MAT submissions.
When I reinstated the Technology Advisory Committee (TAC) not long after I joined the Commission, I did so with the goal of providing a means by which the industry and the Commission could work together to discuss and resolve the challenges imposed on the marketplace by the Dodd-Frank Act. For the past two years, I have held regular meetings of the TAC to foster open discussion and find innovative solutions to technological issues with respect to pre-trade functionality,1 data standards,2 automated and high frequency trading,3 and customer protection.4
Panel I: Swap Data Reporting
This year, we have been confronted by serious problems related to the CFTC’s acceptance, aggregation, and analysis of data submitted to the Swap Data Repositories (SDRs). This is not a surprise—one of the first topics addressed by the TAC was data standardization—but the challenges have really hit home now, with SDR reporting fully underway.
In January 2012, the Commission finalized Parts 435 and 456 of Commission regulations for both real-time and regulatory reporting of swap transactions. However, because of inconsistencies and errors in these rules and the data, the Commission has been unable to effectively utilize the reported data.
Accordingly, at the April 30 meeting of the TAC, I asked Commission staff and the three temporarily-registered SDRs to work on harmonizing the data reporting process, field-by-field, in order to ensure that the data submitted to the Commission by SDRs is consistent and usable, regardless of how this data was submitted to the SDRs. This will ensure that we can aggregate data across the SDRs and perform the necessary analysis. Alignment may also identify new reporting requirements that should be considered and implemented in order to improve the data reporting process.
Further, I have asked that this work be carried out through the TAC so that the process can be open to the public and benefit from thoughtful consideration by the industry. In fact, I will use the TAC to demonstrate the harmonization progress that has been achieved so far, and to accept comments on the proposed modifications. Using this feedback, we can hand over the work done by the TAC to the Commission for possible adoption in the future. Today, we will post the data harmonization chart on the TAC website for public review and invite comment. I have also included links to the SDRs’ real-time ticker data as well.
I am pleased that our first panel today will begin with John Rogers, Director of the Office of Data and Technology (ODT), to report on the progress made by the harmonization working group. Next, we will hear from Richard Berner, the Director of Treasury’s Office of Financial Research (OFR), to discuss federal agency coordination. Then, we will hear from Nicolas Gauthier, Policy Officer, Internal Markets and Services with the European Commission (EC), who will provide the European perspective on cross-border data issues. Mr. Gauthier will also provide an international perspective on trading platforms and execution this afternoon as part of our SEF panel. We are honored to have Mr. Gauthier, who has traveled a considerable distance to participate in this meeting, with us today.
Panel II: Concept Release on Automated Trading
Our discussion will next address the Commission’s recently published Concept Release on Risk Controls and System Safeguards for Automated Trading Environments.7 We will begin the second panel with an overview of the Concept Release by Sebastian Pujol-Schott, Associate Director of the Division of Market Oversight (DMO), and then begin general discussion by the TAC members. Given that the Concept Release was published earlier this week and asks over a hundred questions about very specific trading controls and their deployment in the market, I realize that TAC and subcommittee members may not have had the chance to engage in a full analysis. Nevertheless, I encourage you to participate in this discussion by sharing your immediate reactions to the Concept Release generally, addressing any of the questions it poses, and asking questions of the staff—in short, I welcome any input to help make this a productive discussion.
As I noted earlier, the TAC has spent its time and resources to help strengthen the Commission’s understanding of automated markets. I would like to thank all the TAC members, as well as the members of the Subcommittee on Data Standardization and the Subcommittee on Automated and High Frequency Trading, for their hard work on issues related to automated trading systems and pre-trade functionality. This body of work includes a working definition of “high frequency trading,” as well as a recent TAC reference document that compiled existing standards and recommendations in the market today.8
Today, I would like to build on the TAC’s past work and now focus on better understanding the following issues presented by automated trading systems and high frequency trading:
First, I’d like to learn more about the technology that is deployed today, as well as its effectiveness.
Second, I would like to understand whether there is a need for regulatory action with regard to any of the measures currently in the market. In other words, should the Commission federalize any current industry practices/standards?
Finally, it would be beneficial to receive feedback on the possibility of a registration requirement for firms operating automated trading systems that are not otherwise registered with the Commission. The Concept Release cites the definition of “floor broker” as the potential basis for such a requirement. I am interested to get public input on whether this, or any other provision in the Commission’s statute or regulations, can serve as a legal basis for registration.
Panel III: SEFs / MAT Submissions
Last but not least, I have added a special panel to discuss the status of SEF registration applications, as well as to raise various issues that both SEFs and SEF participants are facing because of the fast-approaching SEF compliance date.
We are only twenty days away from October 2. This means that we are only twenty days away from the SEFs’ ribbon-cutting ceremony, and only twenty days away from the official shutdown of Exempt Commercial Markets (ECMs) and Exempt Boards of Trade (EBOTs). As of today, the staff has temporarily registered three SEFs and has to review fifteen more applications before October 2.
In the midst of this transitional period, we have heard many concerns from different market participants (including SEFs, dealers, clearing members, and other SEF participants) regarding various interpretations of the SEF rules and a number of operational challenges. I would like to have an open discussion of a number of issues surrounding on-boarding, clearing certainty, uniformity of SEF rulebooks, and the status of Made Available to Trade (MAT) determinations. To address these issues, David Van Wagner, the Chief Counsel of DMO, is here to answer your questions.
Thank you all for attending today’s meeting of the TAC. I look forward to addressing these important issues as the Commission continues to implement Dodd-Frank and consider its practical and technological challenges.
1 TAC Pre-Trade Functionality Subcommittee of the CFTC Technology Advisory Committee Report, “Recommended Practices for Trading Firms, Clearing Firms and Exchanges Involved in Direct Market Access,” March 1, 2011, available at
“Compilation of Existing Testing and Supervision Standards, Recommendations and Regulations,” Technology Advisory Committee Meeting, Oct 30, 2012, available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/tac103012_reference.pdf.
2 See TAC Meetings Transcript for December 13, 2011 and March 29, 2012, available at, http://www.cftc.gov/About/CFTCCommittees/TechnologyAdvisory/tac_meetings.
3 See TAC Meetings Transcript for March 1, 2011, June 20, 2012, and October 30, 2012, available at http://www.cftc.gov/About/CFTCCommittees/TechnologyAdvisory/tac_meetings.
4 See TAC Meeting Transcripts for July 26, 2012, October 30, 2012, and April 30, 2012, available at http://www.cftc.gov/About/CFTCCommittees/TechnologyAdvisory/tac_meetings.
5 See 17 C.F.R. § 43, available at http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2011-33173a.pdf.
6 See 17 C.F.R. § 45, available at http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2011-33199a.pdf.
7 This document is available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister090913.pdf.
8 This document is available at http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/tac103012_reference.pdf.
Last Updated: September 20, 2013