U.S. derivatives regulators will vote Friday on a proposal that would give them greater access to the code that drives computerized trading strategies and bring more proprietary traders under their oversight.
The Commodity Futures Trading Commission's proposal is aimed at expanding the regulator's ability to analyze bouts of market mayhem caused by automated trading glitches. The measure was scaled back from a plan issued in December that would have given the CFTC even more direct access to the source code, which can only be obtained with a subpoena under current rules.
The revised proposal, which will be issued for public comment, would allow the CFTC to obtain the code via an order approved by a majority ofthe three-member commission. It also would require about 50 additional trading firms to register with the CFTC and abide by its rules, including the need to implement pre-trade risk controls.
The measure has divided the CFTC along partisan lines, with Chairman Timothy Massad urging its approval and a Republican commissioner, Christopher Giancarlo, saying it gives the agency too much power to obtain the intellectual property of trading firms. Trading firms including Virtu Financial Inc. say the CFTC should only be allowed to acquire the source code with a subpoena, which firms have the ability to challenge.
"The proposal gives unchecked power to the CFTC to decide if, when and how property owners must turn over their source code," Mr. Giancarlo said in a statement prepared for the meeting where commissioners will vote.
Mr. Massad has said the new approach would ensure the code isn't disclosed publicly and that access is limited even among regulatory officials.
Under the new proposal, fewer algorithmic traders would have to register than under the CFTC's original proposal. The new measure requires algorithmic trading firms to register with the CFTC if they trade on average 20,000 futures contracts a day. That would capture about 70 firms that are already under the CFTC's oversight and about 50 additional firms that would have to newly register, CFTC officials said.
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(END) Dow Jones Newswires
November 04, 2016 10:45 ET (14:45 GMT)
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