November 18, 2016

"The Risk Desk" Editor Reviews Debate over CFTC Supplemental Reg. AT Proposal

The Risk Desk editor John R. Sodergreen reported on the CFTC's approval, by a 2-1 vote along party lines, of a supplemental proposal to amend proposed Regulation Automated Trading ("Reg. AT"). The amendments, inter alia, allow the CFTC access to an algorithmic firm’s trading source code without first issuing a subpoena.

Mr. Sodergreen described the debate between Commissioner J. Christopher Giancarlo and Chair Timothy Massad. Commissioner Giancarlo challenged the proposal to obtain access to source code without a subpoena, as an abridgment of procedural rights of property owners. Chair Massad defended the proposal as being comparable to the current requirement that traders furnish their trading records to the CFTC for surveillance purposes, which also does not require a subpoena.

Mr. Sodergreen contrasted Chair Massad's argument that "you should not be able to hide behind machines" to avoid CFTC access to your records, with Commissioner Giancarlo's position: ". . . comparing records of historic trades to the most valuable algorithmic systems that protect the firm’s business strategies are comparing apples to oranges. Trades, historic trades, that's books and records. Firms and algorithmics that show what they will do in the future of certain market factors is an entirely different thing."

Click here to view an excerpt from the most recent issue of The Risk Desk, which is published biweekly by Scudder Publishing Group, an energy trade news company based in Washington, D.C.

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