On behalf of FIA, Greg Wood testified before the House Agriculture Committee today at a hearing to examine the Commodity Futures Trading Commission (CFTC) proposed rule to regulate automated trading (Reg AT).
Wood, who chairs FIA’s Market Access Committee, reiterated comments FIA has shared with the CFTC, which are the culmination of more than five years spent developing best practices in automated trading risk management.
Wood emphasized that risk controls are the most critical means of upholding market integrity. “Pre-trade risk controls are the responsibility of all market participants, and when implemented properly and appropriate to the nature of the activity, have been proven to be the most effective safeguard for the markets, and should be applied comprehensively to all electronic orders,” Wood said.
For that reason, FIA and a wide range of market participants have recommended a flexible, principles-based approach that builds on successful risk controls and safeguards currently in place.
“Rules should not focus on any one specific type of market access, but, rather, should recognize the appropriate application of pre-trade risk controls to protect market integrity,” Wood testified. “Defining a particular group of people and applying risk controls only to registrants does not safeguard markets to the full extent the industry believes is needed.”
FIA has been developing best practices and industry standards on automated trading since 2010 (available here). FIA employed 10 working groups comprised of the trading community, the exchanges, market participants and clearing members to analyze the feasibility of the CFTC’s proposed Reg AT and provide recommendations for improving the regulation prior to finalization. In June, FIA worked with the FIA Principal Traders Group (FIA PTG), Managed Funds Association, SIFMA Asset Management Group, and the International Swaps & Derivatives Association to present a view that has broad agreement across the industry on the importance of dividing Reg AT into phases and first addressing risk controls.