MFA Blog

MFA Submits Comments on CFTC Concept Release on Risk Controls and System Safeguards for Automated Trading Environments

Posted on December 11, 2013

MFA submitted comments to the CFTC today regarding a concept release on risk controls and system safeguards for automated trading environments.  In the letter, MFA noted that the CFTC has implemented a robust derivatives market regulatory framework with rigorous risk controls and system safeguards for automated trading environments.  MFA provided recommendations for enhancing risk controls and system safeguards for the derivatives market further, specifically:

  • As high frequency trading (“HFT”) is not a strategy, but the use of technology to deploy certain trading strategies, the Commission should monitor the markets for abusive trading rather than the means of transaction delivery; it is therefore not necessary, nor particularly effective, for the Commission to define HFT.
  • To protect market integrity and prevent market disruptions, the Commission should address risk controls and system safeguards with respect to all electronic trading and not just automated trading or so-called HFT.
  • Operational, infrastructure and security risks should be addressed by centralizing risk controls at the trading platform and clearing member levels.  Risk controls and system safeguards at such entities will protect market participants and the markets by acting as gateways that monitor activity for market participants and block inappropriate or erroneous orders from the markets.
  • In considering the proposed rulemaking, the Commission should take a principles-based approach that encourages effective self-regulation through trading platforms, futures commission merchants, swap dealers and major swap participants.
  • Maximum order size and credit risk controls should be available and apply to all market participants regardless of a customer’s trading method or strategy.
  • Trading platforms, FCMs and derivatives clearing organizations should provide real-time post-trade reports to market participants and their clearing firms.
  • Trade cancellation and adjustment policies should be clear, objective and predictable.
  • MFA supports more robust and more routine testing of trading software at the trading platform-level.  In addition to individual testing, trading platforms should offer integrated or holistic testing where a firm’s software interacts with others.

Read MFA’s full comment letter online here.