The Institute for Agriculture and Trade Policy (“IATP”) appreciates the opportunity to comment on the above captioned NPRM. IATP last wrote to the Commission concerning electronic trading on May 1, 2017, regarding Regulation Automated Trading (“Reg AT”).
On June 25, the Commission voted by three to two to withdraw the proposed Reg AT and the 2017 Supplementary Notice (SN) to it. IATP will not reiterate our 2016 comment on Reg AT. We cite our 2017 letter on the SN only to state a first principle of any regulation: “Whatever the final content of Regulation AT, it must be enforceable.” This principle must apply to any principles-based regulation. The Principles scarcely mention Reg AT except to call for its withdrawal and to reiterate industry complaints alleging that Reg AT requirements would be “too costly and burdensome” (e.g., FR 42772) for market participants and Designated Contract Markets (DCMs) to implement.
In our view, the salient features of the NPRM are: 1) few proposed definitions in the preamble and three proposed Principles; 2) a retreat from the Reg AT’s proposed regulation of market participants transacting with automated trading systems on DCM platforms; 3) the delegation of most CFTC authority to the DCMs to regulate market participants; 4) the lack of any standardization concerning the risk controls each DCM must design and deploy to prevent, detect and mitigate market disruptions; 5) no requirement in the Principles for post-trade risk controls to determine if a market disruption has resulted in one or a cascade of credit events; 6) the lack of any provision presented in the preamble to enable the Commission to verify DCM compliance with the implementation of the Principles save after the fact of a market disruption, when the DCM is required to provide the Commission with information about the causes and measures to mitigate a market disruption that the DCM determines to be “significant.” (Risk Principle 3)
We will address these features, though not in this order. We will analyze the preambular explanation of the Principles, as well as the Principles themselves, and make a few recommendations to improve the regulation of automated trading. IATP appreciates the work of the DCMs and market participants to establish and implement pre-trade and post-trade risk controls for their automated trading systems and electronic trading platforms. We likewise are grateful to the Technology Advisory Committee (TAC) and Commissioner Brian Quintenz and his staff for organizing the TAC workshops at which DCMs and market participants explained their risk control achievements. Without the work of TAC and the Commission staff, this comment letter couldn’t have been written.
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