At a Congressional hearing in July, members of the House Agriculture Committee sought feedback on the CFTC’s proposed regulation on automated trading (Reg AT). Witnesses, including Greg Wood of FIA and Richard Gorelick, a member of FIA PTG’s executive committee, discussed the value of risk controls, the need to approach the regulation in phases, and the importance of ensuring the regulation is not selectively applied.
And, as with every discussion of Reg AT, one issue stood out as an area of particular concern to lawmakers on both sides of the aisle.
The CFTC has proposed classifying source code as “books and records” which would make it available to both the Commission and the Department of Justice upon request, with no due process in place to protect access to this valuable intellectual property. Gorelick explained that source code is the life blood of many market participants. “Source code includes valuable trade secrets, developed at significant expense, that directly impact business competitiveness,” he explained.
When lawmakers asked if this unprecedented access to intellectual property would enable the CFTC to take action to preempt market failures, Gorelick explained that not only would such an effort be prohibitively costly and complex, but it would also return little information of value.
“It’s sort of like taking a car apart,” Gorelick said. “And studying all the pieces in excruciating detail to try to predict traffic patterns. It’s relevant if you want to build a car, but not if you want to measure traffic.”
Watch Gorelick and Wood explain, in plain English, what source code is, how it is used by market participants, and how FIA and FIA PTG have proposed to address this issue.
