The
Commodity Futures Trading Commission, (CFTC), is proposing rules in effort to
reduce the amount of complications related to automated trading. One disruption
that occurred because of an ATS error was the ‘Flash Crash’ in May of 2010 and
in October of 2014 when the treasury and securities market experienced
unprecedented volatility. The new regulation only effects those who are
practicing in algorithmic trading. Algorithmic trading is defined by the CFTC
in two ways. One, where one or more computer algorithm is used to make any
decision about whether or not to place an order. And two, any order
modification or cancellation being electronically submitted without any human
input. Individuals who manually enter information regarding an order will not
be subject to the new regulation. Additionally, algorithmic traders are going
to be now subject to registration requirements. Through the new rule, the CFTC
is proposing that all automated traders go through an official registration process
with the CFTC. Furthermore, it would now be required for all traders to comply
with at least one other registered futures association, known as RFAs, to
totally fulfill the new mandate. For those traders who engage in algorithmic
trading through the use of source codes, it should be known that by the new
rule, the government is entitled to inspect any source code for any reason and
at any time.

 

Industries Affected:

            New regulations would make it harder for
companies to exccute