Big Brother Is Watching: The Implications of CFTC Reg AT for the Futures Industry

Regulation Automated Trading (“Reg AT”) is the Commodity Futures Trading Commission’s (CFTC) attempt to provide rules and regulations around the changing and growing automated trading environment on the US designated contract markets (DCMs) or more commonly referred to as Futures Exchanges. At the heart of the proposed regulation are safeguards that ensure there are adequate risk controls, transparency measures, and other rules to help ensure that market participants using algorithmic trading systems do not disrupt the otherwise normal course of orderly trading.

The CFTC is taking the opportunity to update and define some of the registration requirements that have come to the forefront in the age of automated and algorithmic trading. Reg AT is looking to allow government agencies access to the underlying code that makes up the foundation of algorithmic trading. This access request is somewhat unique and is expected to raise the most passionate pushback from the market participants.

On a less contentious note, much of the proposed Reg AT issues and concerns have already been addressed and implemented. Pre-trade risk, order management, record keeping, and kill switches are a few examples of best practices that have been in place at many trading firms, FCMs, and exchanges for years.