CFTC Holds TAC Meeting Focusing on SEF Issues (with Lofchie Comment)
The CFTC held its 11th Technology Advisory Committee ("TAC") meeting on February 10, 2014. On three separate panels, the TAC, along with subcommittees on Automated and High-Frequency Trading and Data Standards, focused on various issues related to swap execution facility ("SEF") regulation. The agenda of the panels was as follows:
Panel I – Data: Where Does the Commission Stand and How Do We Fix What's Broken? Panel II – Concept Release on Automated Trading Panel III – Made Available-to-Trade ("MAT") Determination
In his opening statement, Commissioner O'Malia expressed his appreciation that Acting Chairman Wetjen has shown an increased interest in technology issues and a willingness to "ensure that the data we are collecting will be used in a thorough and automated manner." O'Malia applauded the CFTC's recent announcement regarding the formation of a cross-divisional data team that will focus on identifying problems faced by each division and developing solutions to resolve problems with the CFTC's regulatory data. The data team, O'Malia noted, will also solicit comments from market participants on recommended rule changes to the CFTC 's data rules, which will provide the basis of written recommendations that the data team will make for a corrective path forward. Moreover, enhancing the CFTC's swaps reporting rules, O'Malia noted further, will "improve data quality, minimize confusion regarding reporting workflows, and increase standardization."
The first panel – which consisted of a number of CFTC division directors with critical market oversight responsibilities, the entire staff of the CFTC's Office of Data and Technology and the CFTC's new Chief Economist – discussed the following key issues:
- where the CFTC has been successful in utilizing swap data repository data;
- areas where the CFTC has fallen short; and
- changes that must be made.
On this matter, Commissioner O'Malia observed that the CFTC has a long way to go on the other fundamental data objectives.
The second panel focused primarily on the following question: What is the appropriate level of pre-trade functionality deployed by traders, futures commission merchants and exchanges to protect market integrity against rogue trades which can cause market disruption? Participants discussed the Concept Release on Risk Controls and Systems Safeguards for Automated Trading Environments, which has an extended comment period until February 14, 2014.
The third panel addressed SEFs and the recent MAT determinations.
The Division of Market Oversight ("DMO") has deemed certified several MAT submissions for standard interest rate benchmark swaps and credit default swaps. Commissioner O'Malia suggested that the appropriate research and consideration has not yet been given to "package transactions" tied to benchmark contracts. Panel III's discussion on "package transactions" and the CFTC staff will hold a separate roundtable on February 12.
Commissioner O'Malia noted that, while he is "frustrated that we are conducting the analysis on package transactions after making the MAT determinations," he was pleased that this meeting would initiate the process of resolving the issue.
Lofchie Comment: Under the new Acting Chairman, the CFTC is taking observable steps to address deficiencies and confusion in past rulemaking. Trying to get things right after the fact is a challenge. The Treasury is being helpful by opening negotiations with the European Union, ideally laying the groundwork for the CFTC to disavow its Interpretative Guidance on cross-border regulation and replace it with an actual rulemaking that could be coordinated with the SEC.
See: Commissioner O'Malia's Opening Statement.Related news: CFTC Reschedules Public Meeting of Technology Advisory Committee Previously Cancelled for Snow (with Lofchie Comment) (January 24, 2014); CFTC Announces Agenda for the TAC Meeting (with Lofchie Comment) (January 16, 2014).