FIA and FIA PTG Submit Comment Letter to CFTC regarding Market Surveillance Program (with Lofchie Comment)
The Futures Industry Association ("FIA") and the FIA Principal Traders Group ("PTG") sent a comment letter to the CFTC urging it to leverage existing resources in developing a "21st-century surveillance system."
In the letter, FIA and FIA PTG recommended five core requirements for surveillance modernization, which were as follows:
- delegating "front-line surveillance" to exchanges;
- increasing the quantitative and analytical expertise of the CFTC's staff to allow them to better understand increasingly complex data;
- surveying cross-market activities using existing large trader and daily transaction reports;
- avoiding the duplication of existing systems built or commissioned by exchanges; and
- maintaining data privacy and security.
Lofchie Comment: One important policy matter is whether and to what extent the exchanges, which are private for-profit corporations, should be front-line regulators. Generally, in the securities markets, sell-side firms challenge the notion that exchanges should also serve as principal regulators, given that they compete with the sell-side firms they regulate. The PTG letter seems to deal with this issue by emphasizing the regulatory benefits that exchanges may offer by being the principal collectors of relevant information and by providing the first line of surveillance.