March 1, 2011
Good Afternoon. I would like to welcome everyone to the third meeting of the CFTC’s Technology Advisory Committee. As you know, this meeting was originally scheduled for January 27th. However, on the morning of the 26th, Washington was in the crosshairs of a winter storm. I realized that while many of you could probably get here, the odds of getting out, even just a few hours later, would be slim if we got any kind of accumulation. So, in the interest of everyone’s busy schedules, not to mention your safety, I cancelled the meeting.
It’s a good thing, because the storm arrived just as government officials directed everyone to leave early. This paralyzed the city. Unfortunately, commutes that take less than 1 hour lasted for 10, 11 and up to 14 hours. The region appeared unprepared for the storm, but that was just not the case. The problem was that the snow fell at an alarmingly fast rate and by not coordinating their efforts, area employers created a rush hour during the height of the snowfall. The region was the victim of speed and a failure to coordinate.
Speed and coordination dominated the first two TAC meetings as we explored computerized trade strategies and their role in the events of May 6, 2010. Today we are going to take our first shot at tying all of this together in the interest of preparing for the new regulatory world, which is a world dominated by high speed and demands a coordinated approach.
Before we begin Harold Hild, a senior economist in the Commission’s Market Surveillance group, will provide some background on the current role of electronic trading and the use of “stop logic” functionalities on designated contract markets. On May 6, the deployment of one such functionality was critical to stopping the cascade of prices in the futures market. As we explore our options, we should never lose sight of what has already proven to work, but should be always mindful of the potential for improvement.
Our first panel will be a discussion of the Pre-Trade Functionality Subcommittee’s (PFS) Report on Recommendations on Pre-Trade Practices for Trading Firms, Clearing Firms and Exchanges Involved in Direct Market Access (the “PFS Report”). Led by TAC member Dr. Michael Gorham, the PFS was formed just prior to Thanksgiving for the purpose of providing the TAC and Commission with recommendations for applying pre-trade functionality at the direct access participant/trading firm, clearing house, and exchange levels through consideration and analysis of the FIA’s efforts with regard to market access risk management recommendations and risk controls for trading firms and the report of the staffs of the CFTC and SEC to the Joint Advisory Committee on Emerging Regulatory Issues on Findings Regarding the Market Events of May 6, 2010. This document can serve as the foundation to any future proposed rules concerning testing and supervision requirements related to algorithmic trading.
The PFS members who provided their experience and expertise in drafting the PFS Report include Charles Whitman, Chuck Vice, Gary DeWaal and Bryan Durkin. Accordingly, as we go through the various recommendations, we should not lose sight of the fact that the views of exchanges, trading firms, and futures commission merchants directed them. By raising the standards and establishing best practices, we can ensure that all participants are treated equally and ensure that the markets are protected from untested algorithms that could undermine well functioning markets. It is my top priority to ensure that all participants have confidence in these markets and that we maintain high standards for all players.
In addition to discussing the PFS Report, during the first panel, Nick Garrow, Global Head of Electronic Trading at Newedge Group will lead a discussion on the technological applications need to implement the PFS recommendations. I think you will be fascinated to learn about the opportunities and challenges facing markets as a result of technology.
Our second panel will focus on a different kind of speed and coordination: the speed at which we can build and connect the technological infrastructures underlying new trade execution, processing and records management requirements under the Dodd-Frank Act. I am interested to hear from the speakers and listen to the debate. This is our first attempt to tackle the technology integration challenges and I am interested to hear from our Committee.
I know I say this too often, but I continue to believe we must be realistic about the technical, budgetary and infrastructure challenges ahead and work to facilitate the necessary coordination of this infrastructure and set reasonable timeframes in which to accomplish it. Please keep this in mind as we participate in the second panel.
Presentations will include: (1) a discussion of the interconnection and execution of swaps led by Supurna VedBrat of Blackrock; and Discussion of Costs and Technology Challenges in Implementing the Trade Execution, (2) a discussion of the estimated costs and technological investments led by Tabb Group Founder and CEO, Larry Tabb; and (3) a discussion of the feasibility of proposed universal identifiers and the technology supporting data reporting requirements led by Bob Garrison and Marisol Collazzo of DTCC.
Our third and final panel has been intentionally left open for discussion. This is your time to raise new issues and provide comments.
I would like to thank my fellow Commissioners for their participation, and I would like to welcome our Committee members and guest presenters. All of you have taken time out of your busy schedules to participate and contribute to the technology discussion today, and we appreciate your participation.
Last Updated: March 1, 2011