On Feb. 23, the Technology Advisory Committee of the Commodity Futures Trading Commission held a discussion on the agency's proposed Reg AT, which establishes a new set of requirements for firms using automated trading as well as a new set of registration requirements for certain types of firms.
Members of the advisory committee raised concerns about firms being required to provide the CFTC with access to the source code for the programs they write to automate the trading process. They emphasized that this source code is essentially a form of intellectual property subject to the protections of due process, and that the CFTC should not have the ability to access this code without a subpoena.
The committee members also made several comments about registration requirements in the proposed rule. They urged the CFTC to apply the risk control requirements to any type of firm that accesses market electronically, rather than focusing narrowly on “AT persons." One member pointed out that the CFTC already has the authority to go after any market participant, including unregistered firms, for any trading activity that is "disruptive of fair and equitable trading."
The committee members also cautioned that some of the proposed requirements are overly burdensome, too prescriptive and/or counterproductive. For example, penalizing firms for violating their own policies and procedures would discourage the adoption of best practices in risk management, they said.
Several members suggested that the CFTC should separate the sections of the rule that deal with risk controls from the sections that deal with registration requirements, and move forward on each section separately. One member pointed out that the CFTC already has the authority to go after any market participant, including unregistered firms, for any trading activity that "is disruptive of fair and equitable trading."
