SPEECHES & TESTIMONY

Statement of Commissioner Sharon Y. Bowen before the AT Roundtable

June 10, 2016

Good morning. It’s a pleasure to be here for today’s roundtable. We have a very full list of topics today so I’ll be brief. I have already spoken several times about the remarkable changes being wrought by the rise of algorithmic trading and the positive impact that I believe our proposed Regulation on Automated Trading will have on market stability. However, I have also said that I believe this regulation is just a first cut and that we may need to update our proposal to ensure that we are appropriately protecting both the financial system and ordinary investors.

With today’s roundtable, we are taking a crucial step toward fine-tuning our regulation on automated trading. A number of observers have raised questions about certain granular elements of our rule, including how we propose to deal with the source code of algorithms and the role of third party service providers. I hope the sheer fact that we are holding this roundtable today shows that we are sensitive to stakeholders’ concerns about this rule. At base, I want a rule that works; no one, not industry, regulators, consumers, or investors are served by a regulation that is well-intentioned but cannot be implemented. If there is a severe problem with one of our rules, such as a self-defeating provision or a lurking massive loophole, I want to know about it now so that we can promptly fix it.

Yet, while I have high hopes that today’s discussion will lead to enhancements to our rules, I want to also stress that time is of the essence when it comes to regulating automated trading. In the last few weeks, first at the Market Risk Advisory Committee Meeting and subsequently in individual meetings with stakeholders, I have heard increasing anxiety about the state of algorithmic trading from end-users. In one meeting, an agricultural group actually told me it was their top issue in Washington at present. I take the concerns of end-users very seriously, and for them to express such concern about algorithmic trading gave me pause. I believe algorithmic trading has brought some benefits to our markets, but it is clear that some of our key market participants have serious concerns about it, and we should all take their concerns very seriously.

I support this regulation because I believe it will provide a good level of regulation while also allowing continued innovation in algorithmic trading. I hope that we can find a broad consensus of support for this regulation and that we can finalize it soon.

Ultimately, the markets are designed to encourage price discovery and efficient allocation of capital, particularly for end-users. If the end-user community as a whole, and especially the small-end users, doubt that the markets are performing this service, not only will confidence in our markets be harmed, but it is possible that some participants will reduce their investments in our markets. In other words, even though these markets were originally created for them, end-users may consider leaving these markets because they didn’t trust that the markets were working. That is an outcome that I regard as both nonsensical and unacceptable.

I therefore believe we owe it to stakeholders and end-users to finish a strong and effective regulation on automated trading this calendar year, and I sincerely hope that finishing this regulation gives market participants and consumers increased confidence that algorithmic trading is properly regulated and that our markets are properly functioning. Thank you.

Last Updated: June 10, 2016