Release Number 6683-13

September 9, 2013

CFTC Publishes Concept Release on Risk Controls and System Safeguards for Automated Trading Environments

Washington, DC—The U.S. Commodity Futures Trading Commission (Commission) today approved for publication in the Federal Register a Concept Release on Risk Controls and System Safeguards for Automated Trading Environments (Concept Release).

The Concept Release reflects the Commission’s ongoing commitment to the safety and soundness of U.S. derivatives markets in a time of rapid technological change, and provides a platform for discussion and analysis of the appropriate responses to such changes. The Concept Release provides an overview of the automated trading environment, including its principal actors, potential risks, and responsive measures taken to date by the Commission or industry participants. The Concept Release also discusses a series of (1) pre-trade risk controls; (2) post trade reports and other measures; (3) system safeguards related to the design, testing and supervision of automated trading systems (ATSs); and (4) additional protections designed to promote safe and orderly markets. In each case, the Commission seeks extensive public comment regarding these measures.

The Commission’s Concept Release is driven by U.S. derivatives markets’ fundamental transition from human-centered trading venues to highly automated and interconnected trading environments. The operational centers of modern markets now reside in a combination of ATSs and electronic trading platforms that can execute repetitive tasks at speeds orders of magnitude greater than any human equivalent. Traditional risk controls and safeguards that relied on human judgment and speeds must be reevaluated in light of new market structures. Further, the Commission and market participants must ensure that regulatory standards and internal controls are calibrated to match both current and foreseeable market technologies and risks.

The Commission has already taken steps to address the transition to automated trading and require appropriate risk controls, including within designated contract markets (DCMs), swap execution facilities (SEFs), futures commission merchants (FCMs), swap dealers (SDs) and major swap participants (MSPs). Relevant measures to date include rules requiring FCMs, SDs and MSPs that are clearing member firms to establish risk-based limits for all proprietary and customer accounts, and to use automated means to screen orders for compliance with risk limits when such orders are subject to automated execution. The Commission has also adopted requirements for DCMs that provide direct market access, and trading pause and halt requirements for DCMs and SEFs designed to prevent and reduce the potential risk of market disruptions. Additional measures taken by the Commission, as well as practices already in place within industry participants, are discussed in the Concept Release.



Last Updated: September 9, 2013