Securities Regulation Daily Wrap Up, CFTC NEWS AND SPEECHES—CFTC Chairman Gensler Discusses Technology Initiatives, (May 1, 2013)
Organizations Mentioned:National Futures Association | Peregrine Financial Group, Inc.
By Lene Powell, J.D.
According to CFTC Chairman Gary Gensler, the agency will soon finalize a concept release that would propose risk controls and system safeguards for automatic trading environments. In prepared remarks before a public meeting of the Technology Advisory Committee, Gensler predicted the agency will put out the proposal for public comment in the next month to two months.
Automated trading became an issue recently when a hacked AP account posted on Twitter that there had been explosions at the White House and President Obama was injured. The AP quickly tweeted a correction, but, within seconds, the Dow Jones Industrial Average had plummeted. Although the exact causes remain to be determined, many have blamed automated trading algorithms, which analyze and place trades based on market news from various sources, including Twitter.
Transparency. Regulators need to adapt and adjust rules to make sure that the market ultimately benefits from increased transparency, said Gensler. Congress specifically directed that the data reported to swap data repositories be directly, electronically accessible to regulators. The data must be available trade by trade, not a report or a summary. Regulators need to be able to aggregate the data by counterparty, by reference rate, and by trade date.
The CFTC has also proposed rules on ownership and control reporting, which would allow the regulator to know the actual owners and controllers of futures accounts, similar to what is in the swap data repositories for swaps. The chairman said these rules should be finalized.
Customer protection. The CFTC has proposed rules, working with the self-regulatory organizations, such as CME and the National Futures Association, regarding direct electronic access to bank accounts and custodial statements. After the events of last year, including the bankruptcy of the futures commission merchant Peregrine Financial Group, this is a critical issue, said Gensler.
Peregrine shut down in July 2012 after a shortfall of more than $200 million in customer funds was discovered. Its CEO pleaded guilty to embezzling and lying to regulators over the course of twenty years, using false bank accounts. Direct electronic access to bank accounts and custodial statements would allow regulators to detect false financial reports more easily.
RegulatoryActivity: CFTCNews CommodityFutures Derivatives