Are you in compliance?

Don't miss out! Sign up today for our weekly newsletters and stay abreast of important GRC-related information and news.

Get updates on Compliance Week offerings, including new features, databases, research, and other resources, along with announcements of upcoming Webcasts, conferences, seminars, CPE/CLE opportunities and more.

Published every Thursday, Compliance Week Europe offers a condensed summary of risk, audit, and compliance news either originating in Europe, or of special interest to European compliance professionals. This newsletter will follow developments by the European Commission, as well as those of national governments across the region, or any U.S.-based news that might have consequence across the Atlantic. Frequency: weekly; Thursday a.m.

A fresh edition of Compliance Week delivered via e-mail and online every Tuesday morning, relentlessly focused on the disclosure, reporting and compliance requirements of our 25,000+ paying subscribers.

Published every Friday, Compliance Weekend was launched at the behest of subscribers, and offers a quick Plain English review of the week's key developments. We hope you enjoy this supplement to Compliance Week's Tuesday edition.

CFTC Takes Another Step Toward High-Speed Trading Rules

Joe Mont | September 9, 2013

In the aftermath of two Nasdaq shutdowns in as many weeks that were blamed on technology glitches, and responding to longstanding concerns about high-speed and automated trading, the Commodity Futures Trading Commission on Monday published a Concept Release that will serve as a precursor to forthcoming rules, restrictions, and trading limits.

According to a statement issued by the CFTC on Monday, the Concept Release seeks extensive public feedback on risk controls and system safeguards. With a series of 100 questions, it provides an overview of the automated trading environment, potential risks, and risk mitigation efforts already taken. It also discusses, and proposed, pre-trade risk controls; post-trade reports; system safeguards related to the design, testing and supervision of automated trading systems; and additional protections to promote safe and orderly markets.

“Traditional risk controls and system safeguards, many of which were developed according to human speed and floor-based trading, must be evaluated in light of new market realities,” said CFTC Chairman Gary Gensler in a statement.  This Concept Release, he said, is intended “to stir public discussion and debate on how best to protect the functioning of markets.”

Commissioner Scott O'Malia highlighted questions he thought were particularly important. One asks whether there is a need for regulatory action with regard to any of the measures currently in the market. Should the Commission federalize any current industry practices and standards?

He added that it would be beneficial to receive feedback on the possibility of a registration requirement for firms operating automated trading systems that are not otherwise registered with the Commission. The Concept Release cites the definition of “floor broker” as the potential basis for such a requirement.

Commissioner Bart Chilton applauded the move, but lamented it “has taken far too long to come to fruition.”

“In general, those involved in financial markets seem to have blindly accepted that technology is almost always a good thing,” he said in a statement. “Yet, we continue to see major technology problems, like Nasdaq shutting down twice in as many weeks. Last year it was NYSE. In the futures world, we see technology glitches that simply should not occur… [and] market missteps that could have been avoided.”

Chilton pitched a related action that Congress should consider -- increasing punitive penalties the CFTC can levy.

“As long as we have a puny penalty regime at the CFTC, we are going to see traders risk getting caught because the potential profits are so great,” he said.

Under statute, the Commission can only impose a civil monetary penalty of $140,000 per violation and case history suggests that a "violation" may be only once per day. “In these millisecond markets where we have seen a million change hands in a minute, $140,000 is a joke,” he said.

To help an agency “hampered by staffing needs due to a lack of funding,” he urged Congress to consider increasing the maximum penalty levels to $1 million per violation for individuals, and to $10 million for firms.