Liberação do conceito cftc sobre controles de risco e salvaguardas do sistema para ambientes comerciais automatizados

lançamento do conceito Cftc sobre controles de risco e salvaguardas do sistema para ambientes de negociação automatizados
A Comissão de Negociação de Futuros de Mercadorias dos Estados Unidos (Comissão) aprovou hoje para publicação no Federal Register uma versão do conceito sobre controles de risco e salvaguardas do sistema para ambientes de negociação automatizados (versão do conceito).
A versão do conceito reflete o compromisso contínuo da Comissão com a segurança e a solidez dos mercados de derivativos dos EUA em um momento de mudanças tecnológicas rápidas e fornece uma plataforma para discussão e análise das respostas apropriadas a tais mudanças. A versão do conceito fornece uma visão geral do ambiente de negociação automatizado, incluindo seus principais atores, riscos potenciais e medidas responsivas tomadas até o momento pela Comissão ou participantes da indústria. O Concept Release também discute uma série de (1) controles de risco pré-negociação; (2) relatórios pós-comércio e outras medidas; (3) salvaguardas do sistema relacionadas ao projeto, teste e supervisão de sistemas de negociação automatizada (ATSs); e (4) proteções adicionais projetadas para promover mercados seguros e ordenados. Em cada caso, a Comissão solicita amplos comentários públicos sobre essas medidas.
O lançamento do conceito da Comissão é conduzido pelos mercados de derivativos dos EUA e rsquo; transição fundamental dos locais de negociação centrados no ser humano para ambientes comerciais altamente automatizados e interligados. Os centros operacionais dos mercados modernos agora residem em uma combinação de ATSs e plataformas de negociação eletrônica que podem executar tarefas repetitivas em velocidades de ordem de grandeza maiores do que qualquer equivalente humano. Os controlos e salvaguardas tradicionais de risco que dependem do julgamento humano e das velocidades devem ser reavaliados à luz das novas estruturas de mercado. Além disso, a Comissão e os participantes no mercado devem garantir que as normas regulatórias e os controles internos sejam calibrados para corresponder às tecnologias e riscos de mercado atuais e previsíveis.
A Comissão já tomou medidas para abordar a transição para negociação automatizada e exige controles adequados de riscos, inclusive dentro dos mercados contratados designados (DCMs), instalações de execução de swap (SEFs), comerciantes de comissões de futuros (FCMs), comerciantes de swap (SDs) e swap principal participantes (MSPs). As medidas relevantes até o momento incluem regras que exigem FCMs, SDs e MSPs que estão limpando as empresas membros para estabelecer limites baseados em risco para todas as contas proprietárias e de clientes e para usar meios automatizados para exibir pedidos de conformidade com limites de risco quando essas ordens estão sujeitas a automatização execução. A Comissão também adotou os requisitos para os DCMs que proporcionam acesso direto ao mercado e a negociação pausa e interrompe os requisitos para DCMs e SEFs projetados para prevenir e reduzir o risco potencial de interrupções do mercado. As medidas adicionais tomadas pela Comissão, bem como as práticas já existentes nos participantes da indústria, são discutidas na versão do conceito.

LANÇAMENTO: pr6683-13.
9 de setembro de 2013.
CFTC publica lançamento de conceito em controles de risco e salvaguardas do sistema para ambientes de negociação automatizados.
Washington, DC - A Comissão de Negociação de Futuros de Mercadorias dos Estados Unidos (Comissão) aprovou hoje para publicação no Federal Register uma versão do conceito de controles de risco e salvaguardas do sistema para ambientes de negociação automatizados (versão do conceito).
O Release de Conceito reflete o compromisso contínuo da Comissão com a segurança e solidez dos mercados de derivativos dos EUA em um momento de rápida mudança tecnológica e fornece uma plataforma para discussão e análise das respostas apropriadas a tais mudanças. A versão do conceito fornece uma visão geral do ambiente de negociação automatizado, incluindo seus principais atores, riscos potenciais e medidas responsivas tomadas até o momento pela Comissão ou participantes da indústria. O Concept Release também discute uma série de (1) controles de risco pré-negociação; (2) relatórios pós-comércio e outras medidas; (3) salvaguardas do sistema relacionadas ao projeto, teste e supervisão de sistemas de negociação automatizada (ATSs); e (4) proteções adicionais projetadas para promover mercados seguros e ordenados. Em cada caso, a Comissão solicita amplos comentários públicos sobre essas medidas.
O lançamento do conceito da Comissão é conduzido pela transição fundamental dos mercados de derivativos dos Estados Unidos, desde locais de negociação centrados no ser humano até ambientes comerciais altamente automatizados e interconectados. Os centros operacionais dos mercados modernos agora residem em uma combinação de ATSs e plataformas de negociação eletrônica que podem executar tarefas repetitivas em velocidades de ordem de grandeza maiores do que qualquer equivalente humano. Os controlos e salvaguardas tradicionais de risco que dependem do julgamento humano e das velocidades devem ser reavaliados à luz das novas estruturas de mercado. Além disso, a Comissão e os participantes no mercado devem garantir que as normas regulatórias e os controles internos sejam calibrados para corresponder às tecnologias e riscos de mercado atuais e previsíveis.
A Comissão já tomou medidas para abordar a transição para negociação automatizada e exige controles adequados de riscos, inclusive dentro dos mercados contratados designados (DCMs), instalações de execução de swap (SEFs), comerciantes de comissões de futuros (FCMs), comerciantes de swap (SDs) e swap principal participantes (MSPs). As medidas relevantes até o momento incluem regras que exigem FCMs, SDs e MSPs que estão limpando as empresas membros para estabelecer limites baseados em risco para todas as contas proprietárias e de clientes e para usar meios automatizados para exibir pedidos de conformidade com limites de risco quando essas ordens estão sujeitas a automatização execução. A Comissão também adotou os requisitos para os DCMs que proporcionam acesso direto ao mercado e a negociação pausa e interrompe os requisitos para DCMs e SEFs projetados para prevenir e reduzir o risco potencial de interrupções do mercado. As medidas adicionais tomadas pela Comissão, bem como as práticas já existentes nos participantes da indústria, são discutidas na versão do conceito.

O CLS Blue Sky Blog.
Columbia Law School & # 039; s blog sobre empresas e os mercados de capitais.
WilmerHale discute controles de risco para ambientes de negociação automatizados.
Abordando a necessidade de velocidade: CFTC procura comentários sobre controles de risco para ambientes de negociação automatizados.
Em 12 de setembro de 2013, a Commodity Futures Trading Commission ("CFTC" ou "Comissão") publicou uma versão do conceito sobre controles de risco e salvaguardas do sistema para ambientes automáticos de negociação ("Release de conceito" ou "Release"). [1] À luz da mudança fundamental de mercados de derivativos centrados em humanos para ambientes de negócios altamente automatizados e interligados, e no contexto de várias interrupções de mercado recentemente divulgadas, [2], a Lançança procura catalogar e obter comentários sobre a eficácia dos controles de risco existentes nos mercados de derivativos dos EUA. Ele também busca comentários sobre uma variedade de outras medidas de mitigação de riscos.
A Lançamento destaca a atual proeminência de sistemas de negociação automatizados ("ATSs") - incluindo sistemas de alta freqüência ("HFT") que geram e rodam pedidos para mercados que são eles próprios sistemas automatizados para a correspondência e execução de pedidos. O Release observa que, embora esses sistemas tenham conferido muitos benefícios aos participantes do mercado, eles apresentam desafios únicos para sua velocidade, interconexão e dependência de sistemas algorítmicos. Embora a Comissão e os participantes no mercado tenham tomado uma série de medidas para abordar e gerir os riscos que representam os sistemas comerciais altamente automatizados, o Release evidencia o compromisso da Comissão de avaliar a adequação do quadro regulamentar existente e adaptá-lo, se for caso disso, desafios apresentados por sistemas automatizados.
No total, a versão busca comentários sobre 124 questões. A grande maioria dessas questões relaciona-se com categorias específicas de controles de risco pré-negociação, relatórios e medidas pós-negociação, salvaguardas do sistema e medidas adicionais de mitigação de risco descritas na versão. A versão também apresenta uma série de questões gerais sobre se os controles descritos já estão em uso, os custos e benefícios associados a cada um e o valor e extensão de quais controles redundantes devem ser impostos sobre diferentes tipos de participantes no mercado. Finalmente, a versão apresenta uma série de perguntas sobre HFT, diferenças de latência no processamento de pedidos ou relatórios comerciais que oferecem oportunidades de vantagem informacional e comunicações entre os sistemas de tecnologia informacional das trocas.
A Seção II deste alerta fornece uma visão geral dos ambientes de negociação automatizados, seus riscos associados e o cenário regulatório atual para derivativos (futuros e swaps), conforme discutido na versão do conceito. A Seção III fornece um resumo dos controles de risco e outras medidas discutidas na versão, e destaca as questões-chave colocadas pela versão.
Claro, o aumento da automação e os seus riscos associados não são exclusivos dos mercados de derivativos. A Securities and Exchange Commission ("SEC"), como discutimos em alertas anteriores [3] e observamos brevemente aqui, também está abordando muitas das mesmas questões discutidas no Documento de lançamento. Embora a CFTC e a SEC supervisionem diferentes mercados, esses mercados estão, de fato, altamente interconectados.
A. Características e Riscos Automatizados de Meio Ambiente de Negociação.
Enquanto a CFTC observa que não existe uma definição regulamentar de ATSs [4], observa que o termo geralmente se entende por sistemas orientados por computador que automatizam a geração eo roteamento de pedidos para um ou mais mercados. Nos mercados regulamentados pela CFTC, os pedidos gerados por um ATS são, por sua vez, encaminhados através de redes de comunicação de alta velocidade para mercados contratados designados ("DCMs") que combinam ou executam esses pedidos de forma automática. [5] Conforme identificado na versão, o aumento da automação e as redes de comunicação exponencialmente mais rápidas reduziram o ciclo de vida da ordem e da execução para alguns milissegundos. Em vista desta evolução, a Comissão enfatizou a necessidade de sistemas de gerenciamento de risco igualmente sofisticados, com velocidades proporcionais ao ATS em geral, bem como a reavaliação de controles de risco tradicionais e salvaguardas que dependeram do julgamento humano e as velocidades mais apropriadas para Ambientes de negociação manuais ou baseados no chão.
Ao discutir as características dos ambientes de negociação automatizados, a Comissão destaca e busca comentários sobre várias áreas de risco e considerações importantes na avaliação e concepção do quadro regulatório apropriado.
Os sistemas HFT são um subconjunto de ATSs. Embora a CFTC não definiu especificamente a HFT, um grupo de trabalho do Comité Consultivo de Tecnologia da CFTC ("TAC") identificou os seguintes atributos de HFT:
(a) algoritmos para tomada de decisão, iniciação de ordens, geração, roteamento ou execução para cada transação individual sem direção humana; (b) tecnologia de baixa latência projetada para minimizar os tempos de resposta, incluindo serviços de proximidade e co-localização; (c) conexões de alta velocidade para mercados para entrada de pedidos; e (d) taxas de mensagens repetitivas recorrentes (ordens, cotações ou cancelamentos) determinadas usando uma ou mais formas de medida objetivas, incluindo (i) taxas de cancelamento de preenchimento; (ii) taxas de mensagens do participante no mercado; ou (iii) ratios de volume de comércio do participante para o mercado. [6]
Na versão, a Comissão busca comentários sobre o benefício da definição da HFT, bem como os pontos fortes, fracos e adequação geral da definição do grupo de trabalho do TAC. Talvez mais importante, a Lançamento procura obter informações sobre se o HFT deve receber uma atenção regulatória diferente do que os ATS em geral, ou seja, se os diferentes controles de risco devem ser necessários para as empresas e os sistemas HFT.
A Comissão também discute o prémio de que alguns participantes do mercado, como as empresas HFT, colocam a velocidade em relação aos concorrentes. A Comissão observa que, embora as empresas possam reduzir as latências adequadamente através de investimentos em redes de comunicações de alta velocidade e outras tecnologias, também há incentivos para que os participantes do mercado reduzam a latência, minimizando os controles de risco pré-negociação - potencialmente criando uma "corrida para o fundo". Uma preocupação similar mas separada é que os participantes do mercado podem negociar em velocidades que ultrapassem seus sistemas de gerenciamento de risco. A Comissão solicita aos comentadores que identifiquem exemplos de diferenças de latência devido aos processos de troca de transmissão de mensagens que fornecem vantagens informativas e questiona se as trocas e outras empresas devem auditar regularmente seus sistemas para identificar e resolver tais latências.
3. Riscos associados ao aumento dos mercados interconectados.
A Comissão explica que o aumento da interconexão dos mercados pode ajudar na eficiência de preços, mas observa que também aumenta a velocidade com que uma interrupção em uma plataforma de negociação pode afetar os mercados relacionados. Para ilustrar este ponto, a Lançamento discute as etapas que a SEC e os dois participantes do mercado de derivativos tomaram para abordar a volatilidade do mercado após o Flash Crash de maio de 2010, quando os principais índices nos mercados de futuros e títulos diminuíram mais de 5% em alguns minutos, incluindo a adoção ou modificação de paradas e pausas de negociação. A Comissão solicita comentários sobre os benefícios da padronização de vários controles de risco e salvaguardas em todos os mercados e, principalmente, a necessidade de resposta conjunta de regulação e indústria em relação aos controles contemplados na versão.
4. Importância contínua dos controles e salvaguardas manuais.
Embora a Comissão acredite que são necessários sistemas automatizados de gerenciamento de riscos com sofisticação e velocidade compatíveis com a atividade comercial automatizada, observa que tais controles não são suficientes isoladamente. Em vez disso, como enfatizado na versão, "os controles de risco manuais e, em particular, as salvaguardas de sistemas, continuam a ser cruciais para os mercados ordenados". [8] A Comissão observa que, em muitos casos, os controles de risco manuais mudaram "upstream" para o design do sistema e " a jusante "para o gerenciamento do sistema.
B. Respostas do mercado e da agência até à data.
Em resposta a eventos de mercado recentes, a CFTC, a SEC e os participantes no mercado de derivativos e derivativos implementaram várias regras, políticas e procedimentos destinados a abordar as vulnerabilidades destacadas pelos eventos de mercado e mitigar o risco de interrupções futuras. Abaixo está um breve resumo de algumas regras recentes e controles existentes. Um dos objetivos da Versão é determinar até que ponto as recomendações por indústria e grupos consultivos, "melhores práticas" e outros controles voluntários foram implementados de forma consistente em todos os mercados e em que medida essas recomendações e práticas devem ser estabelecidos como requisitos regulamentares.
O Release discute uma série de disposições nas regras da Comissão para implementar a Lei Dodd-Frank relativa aos controles de risco, relatórios comerciais e salvaguardas do sistema. Por exemplo, em abril de 2012, em sua elaboração de regras para estabelecer princípios fundamentais para a operação de organizações de compensação de derivativos ("DCOs"), a CFTC adotou os Regulamentos 1.73 e 23.609, que exigem que cada futuro comerciante de comissão ("FCM") seja membro de um DCO e negociantes de swap ("SDs") e principais participantes de swap ("MSPs") que são membros de um DCO, estabelecem limites baseados em risco para todas as contas proprietárias e contas de clientes e usam medidas automatizadas para exibir itens de pedidos para a execução automática de conformidade com limites baseados em risco em uma base pré-comercial.
No que diz respeito aos DCM, a Comissão adotou os Regulamentos 38.255 e 38.607 em junho de 2012. De acordo com o Regulamento 38.255, os DCMs devem "estabelecer e manter mecanismos de controle de risco para prevenir e reduzir o risco potencial de distorções de preços e interrupções do mercado. . . "[9] Além disso, porque" é impossível que um FCM se proteja sem o auxílio do DCM "[10]. O Regulamento 38.607 exige que os DCMs que permitam o acesso direto ao mercado para ter sistemas e controles efetivamente projetados para facilitar um FCM gerenciamento de risco financeiro e implementação e aplicação de regras que exigem FCM membros para utilizar os sistemas e controles de DCMs.
A Comissão adotou regulamentos e forneceu orientações para abordar dispositivos manipuladores e enganadores, bem como atividades de negociação disruptivas. Em julho de 2011, a Comissão adotou os Regulamentos 180.1 e 180.2 que implementam a proibição estatutária da Seção 6 (c) do Commodity Exchange Act ("CEA") contra manipulação e fraude nos mercados. Além disso, em julho de 2013, a CFTC forneceu orientação sobre o escopo e aplicação das disposições da Seção 4c (a) (5) da CEA, que proíbe práticas de negociação disruptivas especificadas.
The Release também discute uma variedade de recomendações para abordar riscos automáticos relacionados com o comércio da indústria e organizações internacionais. Estes incluem recomendações e conceitos desenvolvidos pelo Grupo de Trabalho de Traders Principais da Associação de Futuros da Indústria ("FIA") e pelo Grupo de Trabalho de Acesso ao Mercado, a Organização Internacional de Comissões de Valores Mobiliários ("IOSCO"), a Autoridade Européia de Valores Mobiliários e Mercados ("ESMA"), e o TAC da Comissão. Por exemplo, o Release cita a recomendação do Grupo de Trabalho dos Comerciantes Principais da FIA de que as empresas treinam pessoal em ATS e desenvolvem sistemas para monitorar e controlar negócios automatizados. A versão também faz referência aos esforços do Grupo de Trabalho de Acesso ao Mercado da FIA e da ESMA para apoiar a concepção e teste de ATS antes da sua utilização.
O Release descreve uma série de ações que os participantes do mercado realizaram voluntariamente. As trocas impuseram disjuntores contra picos de preços, eliminaram interruptores para permitir que as empresas de negociação interrompessem a negociação, os limites de preços nas ordens de mercado, os limites de aceleração de mensagens, as funcionalidades de "ordens removidas após o logout" e as proteções contra operações próprias. No nível da empresa, uma pesquisa realizada pelo Federal Reserve Bank of Chicago informou que todas as nove empresas proprietárias pesquisadas têm limites em tamanhos de pedidos, limites de posição intradiária e interruptores de morte. Outra pesquisa realizada pelo Federal Reserve Bank of Chicago das FCMs indicou que algumas empresas adotaram controles pré-comerciais e pós-negociação para mitigar potenciais perdas comerciais e riscos de crédito em empresas de compensação.
O Release do Conceito destina-se a fornecer à Comissão perspectivas sobre a medida em que os controles e procedimentos voluntários estão sendo implementados e foram efetivos contra os riscos colocados pelos ATS. O Release pergunta se as medidas existentes - tanto regulamentares como voluntárias - são suficientes para enfrentar esses riscos e se outras medidas devem ser incorporadas nas regras da Comissão. O Release descreve os controles de risco em termos gerais "baseados em princípios", e busca comentários sobre se a Comissão deve adotar uma abordagem baseada em princípios ou uma abordagem mais detalhada.
2. Ações da SEC com respeito à Mitigação de Riscos em um Ambiente Automatizado de Negociação.
A SEC adotou e propôs regulamentos destinados a enfrentar os riscos associados à crescente interconectividade dos mercados automatizados. Em novembro de 2010, a SEC adotou a Regra 15c3-5, que exige que os corretores com acesso ao mercado a um sistema de troca ou comercial alternativo implementem controles pré-comerciais razoavelmente projetados para gerenciar os riscos financeiros, regulamentares e outros de tal acesso. 11]
Mais recentemente, a SEC propôs a Regulação de Conformidade e Integridade de Sistemas ("Regulamento SCI") em março deste ano [12], o que exigiria trocas, certos sistemas de negociação alternativos, agências de compensação e processadores de planos para manter políticas e procedimentos razoavelmente projetados para atender a certos padrões de tecnologia e tomar medidas corretivas apropriadas se ocorrerem problemas. A SEC também aprovou recentemente um Plano Nacional do Sistema de Mercado para implementar um mecanismo de "limitar o limite para baixo" para criar "colares comerciais" para ajudar a limitar os movimentos abruptos do mercado em títulos individuais. [13] A SEC também adotou alterações aos disjuntores de todo o mercado para providenciar brechas de negociação breves, coordenadas e transfronteiriças durante uma forte queda no mercado de valores mobiliários. [14]
III. CONTROLOS DE RISCOS POTENCIAIS DISCUTIDOS NA LIBERTAÇÃO DO CONCEITO.
A Comissão solicita comentários sobre a utilidade, os custos e os benefícios associados aos diversos controles de risco que podem ser aplicados nos mercados de derivativos. Ao considerar o alcance e a aplicação dos potenciais controles de risco, a Comissão reitera a necessidade de determinar o estágio adequado em que os controles de risco devem ser aplicados, observando que tais controles podem ser aplicados por: (1) ATSs no momento da geração da ordem; (2) empresas de compensação durante o processo de transmissão da ordem; (3) plataformas de negociação antes de expor ordens ao mercado; (4) DCOs; e (5) outros pontos focais de controle de risco (por exemplo, "hubs" de terceiros).
A Comissão pergunta sobre a eficácia de vários controles de risco potenciais, o grau em que os participantes do setor já utilizam o controle e se há necessidade de ação reguladora para proporcionar uma mitigação de riscos mais uniforme em todos os mercados regulados pela CFTC. A Comissão agrupa os controlos potenciais em quatro grandes categorias: (1) controles pré-comerciais; (2) relatórios pós-negociação e outras medidas pós-comércio; (3) salvaguardas do sistema; e (4) outras proteções potenciais.
A. Potenciais controles pré-comerciais.
A Comissão identifica sete controles pré-negociação no Release do Conceito que visam reduzir as interrupções do mercado relacionadas à negociação automatizada devido a erros, falhas no sistema ou outros eventos com efeitos semelhantes. A Versão afirma que, para corrigir melhor as interrupções, os controles devem ser aplicados em um ou mais três pontos da cadeia de execução: (1) empresas ou comerciantes individuais; (2) intermediários, incluindo SDs, MSPs, FCMs, comerciantes de piso, operadores de pool de mercadorias ("CPOs") e DCOs; e (3) trocas. A Comissão considera que a redundância nos controlos pode permitir que as entidades individuais calibrem o controle relevante de acordo com seus próprios objetivos e tolerâncias de risco e ajudem a responder às preocupações competitivas e de "raça para baixo". A Comissão formulou perguntas sobre os seguintes sete controles pré-comerciais:
1. Mensagem e Estruturas de Execução.
A taxa de mensagem e os aceleradores da taxa de execução ("aceleradores de execução") "impedem que um algoritmo exceda a taxa esperada de mensagem ou taxa de execução e, quando tropeçado, pode alertar monitores em uma empresa de troca e comercial". [15] Esses controles podem ser usado para detectar rapidamente algoritmos de mau funcionamento e assim reduzir os danos associados a algoritmos disruptivos. Os aceleradores de execução também podem ser usados ​​para mitigar o risco de estratégias de mensagens manipuladoras ou disruptivas (por exemplo, "recheio de pedidos").
A Comissão solicita comentários sobre a forma como a taxa de mensagem deve ser determinada para aceleradores de execução e o processo de alinhamento de taxas de mensagens com capacidades de gerenciamento de risco. A Comissão também procura entender o local apropriado para aceleradores de execução e se eles devem se candidatar a todos os ATS ou apenas aqueles que usam estratégias de HFT. Além disso, a versão procura comentar sobre quem deve ser cobrado com a configuração de taxas de mensagem para produtos quando eles começam a operar.
2. Alertas de conscientização de volatilidade.
Os alertas de conscientização de volatilidade são desencadeados quando os preços em um determinado produto ultrapassam um determinado limite dentro de um período de tempo específico, levando a intervenção humana. Diferentemente das pausas de negociação, os alertas serão usados ​​pelos participantes do mercado que operam ATSs para identificar e informar o pessoal de condições de mercado que podem exceder os parâmetros de um algoritmo ou podem destacar os efeitos não intencionais das ordens de um algoritmo. A Comissão perguntou como minimizar o risco de falsos alarmes que possam interromper o comércio ou fazer com que monitores humanos os ignorem ao longo do tempo.
Os controles que identificam e limitam a negociação própria destinam-se a fornecer indicações mais precisas sobre o nível de interesse do mercado em ambos os lados do mercado e ajudam a assegurar transações de longo alcance que promovam a descoberta efetiva de preços. A Comissão pergunta se todos os participantes no mercado devem implementar controlos de auto-negociação, como esses controles devem operar, se há necessidade de padrões regulamentares para esses controles e quão granulares os controles de auto-negociação devem ser (por exemplo, estabelecidos na empresa executora nível ou o nível do comerciante?).
A Comissão descreveu dois tipos de colares de preços que podem ser implementados nos níveis do participante no mercado e da plataforma de negociação: (1) colares de preços em pedidos e (2) colares de preços em execuções. O primeiro impede que ordens fora de intervalos de preços aceitáveis ​​entrem no caderno de pedidos. O último impede que um comando que já esteja no livro seja executado pelo mecanismo correspondente se estiver fora do intervalo aceitável. A Comissão está interessada em comentar se os intercâmbios devem adotar colares de preços para todos os contratos listados e se tais colares ajudariam a mitigar o risco de crédito para DCOs.
Os tamanhos de ordem máxima destinam-se a proteger contra a execução de uma ordem para uma quantidade maior do que um limite predeterminado (isto é, os chamados controles de "dedos gordurosos"). A Comissão observou que os intercâmbios atualmente possuem essa capacidade, mas esses controles podem variar consideravelmente, dependendo do produto, classe de produto ou membro de compensação. A Comissão procura comentar se esta tecnologia deve ser padronizada em todas as trocas, se deve haver padrões regulamentares para essa tecnologia e se outros participantes do mercado, como empresas de compensação e empresas comerciais, também devem ser necessários para implementar esses sistemas.
As pausas de negociação destinam-se a mitigar os movimentos de preços durante os casos de volatilidade do mercado. A Comissão identifica três possíveis desencadeantes de pausas de negociação: (1) quando a execução de ordens de repouso causaria movimentos de preços excessivos; (2) quando os preços se movem para além de um limiar dinâmico durante um período de tempo determinado; ou (3) quando os preços mudaram mais do que um determinado valor durante o dia de negociação. A Comissão está interessada na eficácia das pausas de negociação atualmente em uso e se outros tipos de paus devem ser implementados.
Os limites de risco de crédito pré-comercial podem servir para limitar a atividade de ATS com defeito. Eles podem ser aplicados por plataformas de negociação, empresas de compensação e / ou participantes do mercado que operam ATSs. A Versão busca comentários sobre o escopo, localização e cronograma apropriados no ciclo de vida da ordem para verificações de crédito. A Comissão está especialmente interessada nos pontos fortes e fracos do uso de um modelo "hub" [16] para diferentes tipos de controles de risco pré-negociação.
B. Potenciais controles pós-comércio.
A versão observa que uma estrutura abrangente de controle pré-comercial não pode garantir contra eventos inesperados. A Comissão descreveu certos controles pós-comércio para mitigar ainda mais o impacto de eventos de mercado imprevistos, tais como: (1) relatórios de ordem, comércio e posição de trocas e DCOs; e (2) políticas uniformes de cancelamento e ajuste de negócios. A Comissão procura obter um comentário sobre a medida em que os relatórios de ordem e comércio são oferecidos atualmente, o seu valor na implementação de salvaguardas de risco e se esses relatórios devem ser padronizados.
C. Potenciais salvaguardas do sistema.
A versão também discute uma série de salvaguardas do sistema para plataformas de negociação, empresas de compensação e participantes do mercado (incluindo ATSs). Essas salvaguardas incluem: (1) controles relacionados à colocação de pedidos; (2) políticas e procedimentos para o projeto, teste e supervisão de ATSs; (3) auto-certificações e notificações; (4) ATS ou identificação do algoritmo; e (5) verificações de razoabilidade de dados.
1. Controles relacionados à colocação de pedidos: recursos de cancelamento de pedidos e controles de execução automatizados repetidos.
Os controles relacionados à colocação, cancelamento ou aceleração de pedidos incluem: (1) cancelamento automático em controles de desconexão que cancelam ordens pendentes quando a origem das ordens perdem conectividade; (2) controles de cancelamento de ordem de operação seletiva que facilitam o cancelamento de ordens pendentes de um determinado algoritmo, conta ou mesa; (3) mata os interruptores que impedem as ordens de progredir a jusante sem intervenção humana; e (4) batimentos cardíacos do sistema que facilitam o cancelamento automático no requisito de desconexão, indicando conectividade adequada com a plataforma de negociação. Por exemplo, os aceleradores de execução automatizados limitariam o número de pedidos que um ATS pode enviar desabilitando automaticamente o ATS e exigindo a intervenção humana uma vez que o número máximo pré-definido de pedidos seja atingido. A intervenção humana necessária verificaria de forma independente a operação de um ATS para garantir que a estratégia de um algoritmo esteja funcionando como previsto e que o algoritmo esteja respondendo adequadamente às condições atuais do mercado. A Comissão está particularmente interessada em comentários sobre os benefícios dos interruptores de matar e como eles devem ser implementados por empresas de intercâmbio, comércio e compensação.
2. Políticas e procedimentos para o projeto, teste e supervisão de ATSs.
A Comissão também discute se mais procedimentos padronizados relacionados ao desenvolvimento de sistemas, gerenciamento de mudanças, testes, monitoramento, supervisão, treinamento e gerenciamento de crises beneficiariam os mercados e o público.
uma. ATS e Exchange System Development, Change Management e Testing.
A Comissão discute exigindo que os participantes do mercado que operam ATSs testem esses sistemas tanto internamente quanto em cada plataforma de negociação em que um ATS funcionará. Cada algoritmo deverá ser testado antes da implantação inicial e re-implantação. Além disso, as plataformas de negociação seriam necessárias para fornecer ambientes de teste que simulassem o ambiente comercial de produção. A Comissão solicita comentários sobre os elementos necessários de um regime de teste ATS eficaz e os desafios ou benefícios fornecidos pelo desenvolvimento padronizado, gerenciamento de mudanças e procedimentos de teste para sistemas de intercâmbio.
b. Monitoramento, Supervisão e Treinamento.
A Comissão também discute os procedimentos de monitoramento, supervisão e teste relacionados aos ATS. Por exemplo, a Comissão discute o fornecimento de monitoramento e supervisão em tempo real por pessoal treinado e qualificado em todos os momentos em que o ATS está envolvido na negociação. Especificamente, a Comissão está interessada em entender melhor se as medidas regulamentares ou as novas normas de treinamento promoveriam um monitoramento e supervisão mais eficazes dos ATS.
c. Gerenciamento de crise.
O Release Conceitual destaca a necessidade de procedimentos de gerenciamento de crises bem projetados. Especificamente, a Comissão pergunta se os procedimentos de gestão de crises devem ser padronizados entre os participantes do mercado e se existem requisitos essenciais que devem ser incluídos em tais procedimentos.
3. Auto-Certificações e Notificações.
uma. Certificação de auto-certificação e firma de compensação.
The Commission also asks about the possibility of requiring periodic self-certifications from all market participants operating ATSs and clearing firms providing services to those market participants. A certification program might require market participants operating ATSs to attest, on an annual basis, to the extent of implementation of the applicable risk controls. Additionally, clearing firms might be required to institute reasonable measures to validate that their clients employ the required risk controls. The Commission questions whether a market participant’s chief executive officer, chief compliance officer, or other similarly ranked representative should be required to provide the attestation and by whom the certifications should be audited—DCMs, SEFs or clearing firms.[17]
b. Risk Event Notification.
The Commission discusses whether market participants operating ATSs and trading platforms should be required to inform other entities, including the Commission, of certain risk events. Reportable risk events might include the operation of an ATS in violation of design parameters and any risk control process or technology malfunction.[18]
Proposed Regulation SCI would require “SCI entities” to provide notice to the SEC with regard to “SCI events,” take corrective action regarding such events, and disseminate information related to the event to members or participants. The proposal defines an “SCI event” as “an event at an SCI entity that constitutes: (1) a systems disruption; (2) a systems compliance issue; or (3) a systems intrusion.”
4. ATS or Algorithm Identification.
The Concept Release also discusses and seeks comment on measures to identify, in ATS generated messages, the originating ATS or underlying algorithms in order to more quickly identify malfunctioning systems that could disrupt markets. For example, all orders submitted by an ATS algorithm could be tagged with a unique identifier.
5. Data Reasonability Checks.
Citing the recent adverse market impact of “false information through the unauthorized use of a social media outlet used by the Associated Press,”[19] the Commission expresses interest in the potential for data reasonability checks on incoming data, including, without limitation, market data. The Commission specifically asks whether there are potentially market-moving non-governmental economic reports for which early disclosure should not be permitted.[20]
D. Other Potential Protections.
In addition to the aforementioned controls, reports, and system safeguards, the Commission highlighted and solicited comment on the registration of firms operating ATSs, provision of market quality data, provision of market quality incentives, establishment of policies and procedures to identify “related contracts,” and standardization and simplification of order types.
1. Registration of Firms Operating ATSs.
The Commission seeks comment on whether firms using ATSs in CFTC-regulated markets that are not otherwise registered with the CFTC should be required to register as “floor traders” under CEA section 1a(23). The Commission also solicits comment on whether software firms providing algorithms should be required to register and the potential authority for such a requirement.
The Commission discusses requiring each trading platform to provide daily market quality indicators for each product traded on its platform in order to enable market participants to better understand market stability and efficiency, liquidity, and order flow. Among other metrics, such indicators might include information with respect to effective spreads, order to fill ratios, execution speeds for different types and sizes of orders, and order rejection ratios. Such information could help market participants to make more informed decisions with respect to their trading strategies and mitigate potential adverse effects of their actions on other market participants.
3. Market Quality Incentives.
The Commission also expresses interest in ways to incentivize enhanced market quality and price discovery. For example, such measures might include rewarding market makers for leaving resting orders in the order book for a longer period of time, and ensuring that automated traders place orders based on their knowledge of the economic value of the asset being traded, rather than their knowledge of order book dynamic or other market participants’ trading patterns. The Commission also asked whether there should be a minimum time period for orders to remain on a limit order book.
4. Policies and Procedures to Identify “Related Contracts”
To protect against market disruptions on one platform causing market disruptions on other platforms, the Commission discussed the obligation of DCMs to identify “related” contracts under CFTC Regulation 38.255 (trading risk controls). Specifically, Appendix B of Regulation 38.255 provides guidance requiring all DCMs to coordinate their risk controls with respect to “related” contracts. The Commission requests DCMs to describe whether they have fully implemented this guidance, and seeks comment on whether it would be beneficial for each exchange to review the contracts traded on other exchanges to identify linked or substitute contracts.
5. Standardize and Simplify Order Types.
The Commission discusses the possibility of reviewing current and proposed order types to consolidate, standardize, and simplify order types that have complex logic embedded within them. The Commission asks whether the standardization of order types across platforms would simplify system testing and thereby reduce the potential for instability due to the unanticipated interaction of multiple ATSs utilizing various means of execution within an order book.
The Concept Release discusses a wide range of issues associated with the use, control, and potential further regulation of automated trading systems. Considering the Commission’s expressed interest in alleviating the risk and frequency of market disruptions that undermine the efficiency of the markets, future regulatory action in this arena is likely. It is in the interests of market participants to provide the Commission with responses to the most relevant questions throughout the Release to assist in guiding any potential regulatory action. In addition, with the CFTC and SEC each having responsibility for the oversight of two separate, but interrelated markets, it seems particularly important that market participants identify those areas in which the regulators should closely consider the practical effects of proposed regulatory action in one market on the other.
1. Concept Release, 78 Fed. Reg. 56,542, 56,551 (Sept. 12, 2013), available at cftc. gov/ucm/groups/public/lrfederalregister/documents/file/2013-22185a. pdf.
2. The Commission highlighted the May 2010 Flash Crash, the Knight Capital Group software malfunction, and the technical issues associated with Nasdaq’s commencement of trading after the Facebook IPO. In the Commission’s view, these events illustrate the technological and operational vulnerabilities inherent to automated trading environments. With regard to automated trading systems (“ATSs”), the Commission identified the existence of vulnerabilities with respect to “algorithm design flaws, market conditions outside of normal operating parameters, the failure of built-in risk controls, operational failures in the communication networks on which ATSs depend for market data and connectivity with trading platforms, and inadequate human supervision.” Id . at 56,548-550.
3. Andre Owens et al., SEC Gets SCI-entific About Trading Systems with Proposed Regulation SCI, WilmerHale (Mar. 27, 2013), available at wilmerhale/pages/publicationsandnewsdetail. aspx? NewsPubId=10737420831; Andre Owens et al., SEC Adopts the Consolidated Audit Trail Rule, WilmerHale (Oct. 1, 2012), available at wilmerhale/pages/publicationsandnewsdetail. aspx? NewsPubId=112818; Elizabeth Derbes & Andre Owens, SEC Adopts Rule Requiring Large Trader Reporting, WilmerHale (Aug. 1, 2011), available at wilmerhale/pages/publicationsandnewsdetail. aspx? NewsPubId=92931; Andre Owens et al., SEC Proposes Broad Changes for Broker-Dealers with Direct Access to ATSs and Exchanges, WilmerHale (Feb. 3, 2010), available at wilmerhale/pages/publicationsandnewsdetail. aspx? NewsPubId=93576; Andre Owens et al., SEC’s Equity Market Structure Concept Release Highlights Potential New Regulatory Initiatives, WilmerHale (Jan. 20, 2010), available at wilmerhale/pages/publicationsandnewsdetail. aspx? NewsPubId=87416.
4. In the SEC context, “ATS” refers to an “alternative trading system.” Regulation ATS defines an alternative trading system to be any organization, association, person, group of persons, or system: “(1) That constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange within the meaning of § 240.3b-16 of this chapter; and (2) That does not: (i) Set rules governing the conduct of subscribers other than the conduct of such subscribers’ trading on such organization, association, person, group of persons, or system; or (ii) Discipline subscribers other than by exclusion from trading.” 17 C. F.R. § 242.300 (2013).
5. Although this has been the case historically, ATSs (including HFT systems) may be employed with respect to swaps traded on a swap execution facility (“SEF”).
6. Concept Release, supra note 1 at 56,545. The SEC similarly has refrained from providing a definition of HFT. Rather, like the TAC, the SEC has identified attributes of HFT, including:
(1) the use of extraordinarily high-speed and sophisticated computer programs for generating, routing and executing orders; (2) use of co-location services and individual data feeds offered by exchanges and others to minimize network and other types of latencies; (3) very short timeframes for establishing and liquidating positions; (4) the submission of numerous orders that are cancelled shortly after submission; and (5) ending the trading day in as close to a flat position as possible (that is, not carrying significant, unhedged positions overnight).
Concept Release on Equity Market Structure, Exchange Act Release No. 61, 358, 75 Fed. Reg. 3,594, 3,606 (Jan. 21, 2010).
7. In this context, latency is the measure of the time delay between the actual occurrence of an event (for example, an execution) and receipt of notice of that event.
8. Concept Release, supra note 1 at 56,547.
9. 17 C. F.R. § 38.255 (2013).
10. Concept Release, supra note 1 at 56,548 (citing Core Principles and Other Requirements for Designated Contract Markets, RIN 3038–AD09, 77 Fed. Reg. 36,612, 36,648 (June 19, 2012)).
11. 17 C. F.R. § 240.15c3-5 (2013); see also Risk Management Controls for Brokers or Dealers with Market Access, Exchange Act Release No. 63,241, 75 Fed. Reg. 69,792 (Nov. 15, 2010).
12. See Regulation Systems Compliance and Integrity, Exchange Act Release No. 69,077, 78 Fed. Reg. 18,084 (Mar. 25, 2013) [hereinafter “Proposed Reg. SCI”].
13. See Order Approving, on a Pilot Basis, the National Market System Plan to Address Extraordinary Market Volatility by BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, The Nasdaq Stock Market LLC, National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc., Exchange Act Release No. 67,091, 77 Fed. Reg. 33,498 (May 31, 2012); Notice of Filing and Immediate Effectiveness of the Second Amendment to the Limit Up-Limit Down Plan, Exchange Act Release No. 68,953, 78 Fed. Reg. 13,113 (Feb. 26, 2013); Order Approving the Third Amendment to the Limit Up-Limit Down Plan, Exchange Act Release No. 69,287, 78 Fed. Reg. 21,483 (Apr. 10, 2013).
14. See Notice of Filing of Amendments No. 1 and Order Granting Accelerated Approval of Proposed Rule Changes as Modified by Amendments No. 1, Relating to Trading Halts Due to Extraordinary Market Volatility, Exchange Act Release No. 67,090, 77 Fed. Reg. 33,531 (June 6, 2012). The operative date of the revised circuit breakers was delayed from February 4, 2013 to April 8, 2013; see, e. g., Notice of Filing and Immediate Effectiveness of Proposed Rule Change Delaying the Operative Date of a Rule Change to NYSE Rule 80B, Which Provides for Methodology for Determining When to Halt Trading in All Stocks Due to Extraordinary Market Volatility, From the Date of February 4, 2013, Until April 8, 2013, Exchange Act Release No. 68,784, 78 Fed. Reg. 8,662 (Feb. 6, 2013).
15. Concept Release, supra note 1 at 56,553.
16. The “hub model” entails the use of third-party “hubs” through which orders or order information could flow to uniformly mitigate risks across one or more trading platforms. See id . at 56,544.
17. Securities Exchange Act of 1934 Rule 15c3-5 requires the chief executive officer of a broker-dealer providing market access to annually certify that the risk management controls and supervisory procedures comply with Rule 15c3-5, and that a regular review of the procedures has been conducted.
18. Proposed Regulation SCI would address risk event notifications with respect to the securities activities of “SCI entities.” An SCI entity would be defined as a securities self-regulatory organization, SCI alternative trading system, plan processor, or exempt clearing agency subject to the SEC’s automated review policy. See Proposed Reg. SCI, supra note 12 at 18,092.
19. Concept Release, supra note 1 at 56,560.
20. See Concept Release, supra note 1 at 56,560 (“While government reports are released pursuant to a lock-up process that is intended to ensure that no entity receives them ahead of others, it has been reported that early access to some non-government economic reports is available for a fee. For example, according to recent reports, the University of Michigan’s consumer report was available to certain investors two seconds ahead of the rest of the market.”).
The original memo was published by WilmerHale on October 7, 2013 and is available here.

CFTC Concept Release: Risk Controls and System Safeguards for Automated Trading.
On September 9, 2013, the CFTC issued a concept release on risk controls and system safeguards for automated trading environments. The release offers a snapshot of the automated trading environment, and presents a system that would involve:
pre-trade risk controls; post trade reports and other measures; system safeguards related to the design, testing and supervision of automated trading systems (ATSs); and additional protections designed to promote safe and orderly markets. [1]
The release requests responses from market participants and the general public on 124 questions related to system safety. The release entered the Federal Register on September 12, 2013, and the comment period closed December 11, 2013, but was subsequently reopened until February 14, 2014. Comments may be viewed HERE.
Fundo.
After the May 6, 2010 "flash crash," the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues was formed in order to address market structure and regulatory issues that may contribute to volatility. On February 18, 2011, the committee issued its recommendations regarding a regulatory response to the flash crash. In response to the recommendations, the two regulators have finalized several rules:
Also, in March 2013, the SEC issued its proposed rule, Regulation SCI, Systems Compliance and Integrity, under which self-regulatory organizations, certain alternative trading systems, plan processors, and certain exempt clearing agencies would be required to carefully design, develop, test, maintain, and surveil systems that are integral to their operations. [2] .
Summary of the Release.
The CFTC release looks at the entire trade life cycle and options as to the appropriate placement of risk controls:
at the automated trading system (ATS) level at the time of order generation; at clearing firms during the order transmission process; at trading platforms prior to exposing orders to the market; at derivatives clearing organizations (DCOs); and at other risk control hubs such as third-party service providers.
The release also requests comment regarding the appropriate placement of surveillance tools for both monitoring and for academic research purposes. Through the questions, the commission hopes to gain an understanding of ATS's impact on market structure.
The 124 questions cover topics such as:
high frequency trading (HFT), its definition and impact; latency issues; DCO integrity; direct market access (DMA) message and execution throttles; volatility alerts; self-trade controls; price collars; maximum order sizes; trading pauses; credit risk limits; order, trade and position drop copy; trade and order cancellation policies and capabilities; ATS testing; crisis management; self-certification; risk event notification; ATS or algorithm identification; data reasonability checks; registration of ATS firms; market quality data and incentives; policies and procedures to identify “related contracts”; standardize and simplify order types; and general questions regarding all risk controls.
The release concludes with a summary table of all possible risk controls, the party who would implement each policy, and the substance of control. A summary table of these controls can be found below the embedded document.
Related Document: Concept Release Document.
Summary Table: Possible Risk Controls and the Substance of Each Control.
Trading platforms’ systems must prevent the acceptance of messages in excess of their own specified rates and must log instances when each ATS attempted to exceed such limits. Separately, trading platforms must establish systems enabling clearing firms to set rate limits directly at the trading platform. Trading platforms, clearing firms and market participants may set rates independently of each other. In all cases, human monitors must be alerted when limits are breached.
Trading platforms must establish a maximum number of orders in the same direction they will execute per unit time from a uniquely identified ATS, and must prevent execution of trades that would violate this limit. Separately, trading platforms must establish systems enabling clearing firms to set per-customer message rate limits directly at the trading platform. Trading platforms, clearing firms and market participants may set rates independently of each other.
All market participants must establish similar product-specific price collars and should implement systems to ensure that orders outside of the collar are not transmitted to the relevant trading platform.
A market participant’s systems must prevent the submission of orders in excess of its internally-specified limits. A clearing firm’s systems must prevent the transmission of customer orders in excess of its limits for that customer. Trading platforms must prevent their systems from processing or executing orders in excess of the limit specified by the trading platform. In addition, for DMA customers, trading platforms must establish similar systems enabling clearing firms to set per-customer order size limits directly at the trading platform. Limits set by market participants, clearing firms, and trading platforms may be different from, and operate independently, of each other.
Policies must favor price adjustments rather than trade cancellation. To the extent possible, policies must require decisions by the trading platform to be made on the basis of readily available objective criteria in order to facilitate rapid or immediate decisions.
Trading platforms must notify market participants of a potential adjust-or-bust situation immediately. Trading platforms must make a decision and notify market participants of that decision within a specified period of time.
Policies must favor price adjustments rather than trade cancellation. To the extent possible, policies must require decisions by the trading platform to be made on the basis of readily available objective criteria in order to facilitate rapid or immediate decisions.
Trading platforms must notify market participants of a potential adjust-or-bust situation immediately. Trading platforms must make a decision and notify market participants of that decision within a specified period of time.
If connectivity to any system is lost, the ATS should be disabled, and resting orders should be maintained or cancelled based on the pre-determined preferences of the firm that lost connectivity.
Firms must maintain a source code repository to manage source code access, persistence, and changes. Firms must establish and document procedures for communicating the functionality and requirements of, and changes to, their proprietary software. These procedures must include an audit trail of material changes that would allow them to determine, for each change: who made it, when they made it, and what the purpose was for the change. Firms must have documented policies and procedures that allow representatives from trading, risk, and software management to approve changes and to verify internal testing before a new or modified trading system can be enabled in production.
Market participants must perform such testing on each algorithm prior to initial deployment, and prior to re-deployment, after certain modifications to the algorithm. Trading platforms must provide test environments that simulate the production trading environment so that market participants may conduct exchange-based conformance testing on their ATSs once they have completed internal testing. Conformance testing must include tests for all ATS risk mitigation controls that are able to be tested by the exchange. Exchange-based conformance testing must be done after certain modifications to the operating code.
Appropriate supervision includes automated alerts when ATS order behavior breaches design parameters or when market conditions diverge from program expectations. It also includes automated alerts upon loss of network connectivity or data feeds. Monitoring and supervision staff must have the ability and authority to disengage the ATS and to cancel resting orders when system or market conditions require it, including the ability to contact trading platform staff to seek information and cancel orders. They must also have acceptable dashboards and control panels to monitor and interact with the ATS. Monitoring and supervision staff must record the time when they assume responsibility for an ATS and the time when they relinquish control to others. Recording must be achieved through distinct log-ins to the required control panel by each staff person. Log-in must also be subject to access controls that ensure the correct staff person is identified.
Additionally, each firm must develop, document, and implement training policies that ensure human monitors are adequately trained for each new algorithm that is implemented. Training must include, at a minimum, the economic rationale for the algorithm and mechanics of the underlying process, as well as the automated and non-automated risk controls that are applicable to the algorithm.
Procedures should direct the process for evaluating, managing, and mitigating market disruption and firm risk. The procedures should also specify people to be notified in the event of an error that results in violations of risk profiles or potential violations of exchange or Commission rules.
Clearing firms must institute reasonable measures to confirm that their client trading firms implement the pre-trade risk controls that are required.
The feeds would include measures of execution quality including: (1) effective spreads; (2) order to fill ratios; (3) execution speed for different types of orders and different order sizes; (4) aggressiveness imbalance; (5) price impact for given trade sizes; (6) average order duration; (7) order efficiency; (8) rejection order ratio; (9) net position changes versus volume; (10) branching ratios; (11) volume imbalance and trade intensity; (12) Herfindahl-Hirschman Indexes based on market share of open positions under common control; and (13) metrics on the number of price changing trades involving ATSs.

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Laryngoscope 1996;106:213216. It gives the contribution ПѓdB where dB is an increment of a Brownian motion and has zero mean and variance dt. The upper limit of normal for the migration index is 20 at age four. [3234] Although solubility is an important factor in deter - mining nucleation rates, the dependence of nucleation rate on solubility may not be followed in the presence of strong solventsolute interactions that interfere with the formation of molecular assemblies compatible with those in the crystalline state.
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2001; 63: 467485. This is supported by the fact that the analogous Cu-Cu, Pd-Pd and Cd-Cd systems. Cor, J. This is greater than the diameter of the blood vessel so that the vessel would be fully insonated and we would get Doppler information from the whole of the cross-section.
Namely, the Dirichlet principle asserts that the solution to (5. Persistent VPD after posterior pharyngeal flap sur - gery. An additional advantage is that only the plane of focus is illuminated, and photobleach - ing, photodamaging, and photon toxicity of the out-of-focus field (which is the majority of the slice) is avoided. GreatOrmondStreetHospitalforChildrenNHSTrust.
7 1.costs associated with letting some gains (say, short-run or opportunistic ones) tradihg away. A database of designs would accelerate the development of molecular nanotechnology (see Jorgensen and Salem, 1973). Vis. If you use material from another source, obtain written per - mission from the copyright owner and identify your source at the end of your caption. Myosin is present as a bundle of several hundred stacked molecules in the form of a thick myosin filament.
56 91. Cumulative patient survival after extra-anatomic bypass 3 6 12 24 36 48 60 (mo) Ax-fem 87 83 77 71 58 55 53 Fem-fem 96 94 89 84 71 63 51 Data expressed as percent.
Succinate is produced by a number of other parasites, including aerobic protozoa such as Leish - mania (Chapter 2) and anaerobic parasitic worms including Ascaris (Chapter 4). m file from the RandomWalks example. 25) 7.
In contrast, assistive technology can be viewed as a product of rehabilitation engineering activities. One possible approach is to replace this postulate with another one that is more appealing, preventing its activation (eg, binding sites for cAMP in PKA or for diacylglycerol in PKC).
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It is characterized by the pro - liferation of small acinar glands lined by cells lacking cytological features of malignancy. 463 1 300 1. Regulation of cardiac myocyte Ca2 flux. On that day and at the altitude of the flight, obtained from T Gwhere Tc includes partial waves up to lc only. Kohler An, Nance DR, Cramer MM, Vandenburghe N, Strandness DE Jr (1987) Duplex scanning for diagnosis of aortoiliac and femoropopliteal disease: a prospective study.
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12(b). Staining with propidium iodide yielded more complicated amd. The fifth condition is that buyers and sellers are free to enter into, conduct, or get out of business. As discussed in Sect. Endocrinology 1999; 140(5):20712076. You can determine how much is free by using the df com - mand. An evaluation of resident education and experience. 6 35.
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WilmerHale discusses Risk Controls for Automated Trading Environments.
Addressing the Need for Speed: CFTC Seeks Comment on Risk Controls for Automated Trading Environments.
On September 12, 2013, the Commodity Futures Trading Commission (“CFTC” or “Commission”) published a Concept Release on Risk Controls and System Safeguards for Automated Trading Environments (“Concept Release” or “Release”).[1] In light of the fundamental shift from human-centered derivatives markets to highly automated and interconnected trading environments, and against the backdrop of several recent highly publicized market disruptions,[2] the Release seeks to catalogue and obtain comment on the efficacy of existing risk controls in US derivatives markets. It also seeks comment on a variety of other risk-mitigating measures.
The Release highlights the current prominence of automated trading systems (“ATSs”)—including high-frequency trading (“HFT”) systems—that generate and route orders to markets that are themselves automated systems for the matching and execution of orders. The Release notes that while these systems have conferred many benefits upon market participants, they present challenges unique to their speed, interconnectedness, and reliance on algorithmic systems. While the Commission and market participants have taken a number of steps to address and manage the risks posed by highly automated trading systems, the Release evidences the Commission’s commitment to assess the adequacy of the existing regulatory framework and adapt it, as appropriate, to meet the challenges presented by automated systems.
In total, the Release seeks comment on 124 questions. The vast majority of those questions relate to specific categories of pre-trade risk controls, post-trade reports and measures, system safeguards, and additional risk-mitigating measures described in the Release. The Release also poses a series of overarching questions about whether the controls described are already in use, the costs and benefits associated with each, and the value of and extent to which redundant controls should be imposed upon different types of market participants. Finally, the Release poses a series of questions about HFT, latency differences in order handling or trade reporting that provide opportunities for informational advantage, and communications between exchanges’ informational technology systems.
Section II of this alert provides an overview of automated trading environments, their associated risks, and the current regulatory landscape for derivatives (both futures and swaps), as discussed in the Concept Release. Section III provides a summary of the risk controls and other measures discussed in the Release, and highlights key questions posed by the Release.
Of course, increased automation and its attendant risks are not unique to the derivatives markets. The Securities and Exchange Commission (“SEC”), as we have discussed in prior alerts[3] and note briefly here, also is addressing many of the same issues discussed in the Concept Release. Although the CFTC and the SEC oversee different markets, those markets are, in fact, highly interconnected.
A. Automated Trading Environment Characteristics and Risks.
While the CFTC notes that there is no regulatory definition of ATSs,[4] it observes that the term generally is understood to mean computer-driven systems that automate the generation and routing of orders to one or more markets. In CFTC-regulated markets, orders generated by an ATS are, in turn, routed through high speed communication networks to designated contract markets (“DCMs”) that match or otherwise execute those orders in an automated fashion.[5] As identified in the Release, the increased automation and exponentially faster communication networks have reduced the order and execution lifecycle to a few milliseconds. In view of this evolution, the Commission emphasized the need for equally sophisticated risk management systems with speeds commensurate to that of the ATS generally, as well as the re-evaluation of traditional risk controls and safeguards that relied on human judgment and speeds more appropriate to manual or floor-based trading environments.
In discussing the characteristics of automated trading environments, the Commission highlights and seeks comment on several risk areas and key considerations in assessing and designing the appropriate regulatory framework.
HFT systems are a subset of ATSs. Although the CFTC has not specifically defined HFT, a working group of the CFTC’s Technology Advisory Committee (“TAC”) has identified the following attributes of HFT:
(a) algorithms for decision making, order initiation, generation, routing, or execution for each individual transaction without human direction; (b) low-latency technology that is designed to minimize response times, including proximity and co-location services; (c) high speed connections to markets for order entry; and (d) recurring high message rates (orders, quotes or cancellations) determined using one or more objective forms of measurement, including (i) cancel-to-fill ratios; (ii) participant-to-market message ratios; or (iii) participant-to-market trade volume ratios.[6]
In the Release, the Commission seeks comment on the benefit of defining HFT, as well as the strengths, weaknesses and overall adequacy of the TAC working group’s definition. Perhaps more importantly, the Release seeks input on whether HFT should receive different regulatory attention than ATSs in general, i. e., whether different risk controls should be required for HFT firms and systems.
The Commission also discusses the premium that some market participants, such as HFT firms, place on speed relative to competitors. The Commission notes that while firms may reduce latencies appropriately through investments in high-speed communications networks and other technologies, there also are incentives for market participants to reduce latency by minimizing pre-trade risk controls—potentially creating a “race to the bottom.” A similar but separate concern is that market participants may be able to trade at speeds that outpace their risk management systems. The Commission asks commenters to identify examples of latency differences due to exchange processes for message transmission that provide informational advantages and asks whether exchanges and other firms should regularly audit their systems to identify and resolve such latencies.
3. Risks Associated with the Rise of Interconnected Markets.
The Commission explains that increased interconnectedness of markets may help with pricing efficiencies, but notes that it also increases the speed with which a disruption on one trading platform can impact related markets. To illustrate this point, the Release discusses the steps that the SEC and two derivatives market participants took to address market volatility following the May 2010 Flash Crash, when the major indices in both the futures and securities markets fell by more than 5% in a few minutes, including the adoption or modification of trading halts and pauses. The Commission asks for comment on the benefits of standardizing various risk controls and safeguards across markets and, importantly, the need for joint regulatory and industry response with respect to the controls contemplated in the Release.
4. Continuing Importance of Manual Controls and Safeguards.
While the Commission believes that automated risk management systems with sophistication and speed commensurate with the automated trading activity are necessary, it notes that such controls are not sufficient in isolation. Rather, as emphasized in the Release, “manual risk controls, and particularly systems safeguards, remain crucial to orderly markets.”[8] The Commission notes that, in many cases, manual risk controls have shifted “upstream” to system design and “downstream” to system management.
B. Market and Agency Responses to Date.
In response to recent market events, the CFTC, the SEC, and derivatives and securities market participants have implemented various rules, policies, and procedures designed to address the vulnerabilities highlighted by the market events and mitigate the risk of future disruptions. Below is a brief summary of some recent rulemakings and existing controls. One of the objectives of the Release is to determine the extent to which recommendations by industry and advisory groups, “best practices,” and other voluntary controls have been implemented in a consistent manner across the markets, and the extent to which these recommendations and practices should be established as regulatory requirements.
The Release discusses a number of provisions in Commission rulemakings to implement the Dodd-Frank Act relating to risk controls, trade reporting, and system safeguards. For example, in April 2012, in its rulemaking to establish core principles for the operation of derivatives clearing organizations (“DCOs”), the CFTC adopted Regulations 1.73 and 23.609, which require each future commission merchant (“FCM”) that is a member of a DCO, and swap dealers (“SDs”) and major swap participants (“MSPs”) that are members of a DCO, to establish risk-based limits for all proprietary accounts and customer accounts and to use automated measures to screen orders subject to automated execution for compliance with risk-based limits on a pre-trade basis.
With respect to DCMs, the Commission adopted Regulations 38.255 and 38.607 in June 2012. Under Regulation 38.255, DCMs must “establish and maintain risk control mechanisms to prevent and reduce the potential risk of price distortions and market disruptions . . . .”[9] Moreover, because “it is impossible for an FCM to protect itself without the aid of the DCM,”[10] Regulation 38.607 requires DCMs that permit direct market access to have effective systems and controls reasonably designed to facilitate an FCM’s management of financial risk and to implement and enforce rules requiring member FCMs to utilize the systems and controls of DCMs.
The Commission has adopted regulations and provided guidance to address manipulative and deceptive devices as well as disruptive trading activity. In July 2011, the Commission adopted Regulations 180.1 and 180.2 implementing the statutory prohibition of Section 6(c) of the Commodity Exchange Act (“CEA”) against manipulation and fraud in the markets. Additionally, in July 2013, the CFTC provided guidance on the scope and application of provisions of Section 4c(a)(5) of the CEA, which prohibits specified disruptive trading practices.
The Release also discusses a variety of recommendations to address automated trading-related risks from industry and international organizations. These include recommendations and concepts developed by the Futures Industry Association’s (“FIA”) Principal Traders Working Group and Market Access Working Group, the International Organization of Securities Commissions (“IOSCO”), the European Securities and Markets Authority (“ESMA”), and the Commission’s TAC. For example, the Release cites the FIA’s Principal Traders Working Group recommendation that firms train personnel in ATSs and develop systems to monitor and control automated trading. The Release also references efforts by the FIA’s Market Access Working Group and ESMA to support the design and testing of ATSs prior to their use.
The Release describes a number of actions that market participants have undertaken voluntarily. Exchanges have imposed circuit breakers against price spikes, kill switches to enable trading firms to halt trading, price limits on market orders, message throttle limits, “orders removed upon logout” functionality, and protections against self-trading. At the firm level, a survey conducted by the Federal Reserve Bank of Chicago reported that all nine of the proprietary firms surveyed have limits on order sizes, intraday position limits, and kill switches. Another survey by the Federal Reserve Bank of Chicago of FCMs indicated that some firms have adopted pre-trade and post-trade checks to mitigate potential trading losses and credit risks at clearing firms.
The Concept Release is intended to provide the Commission with perspectives on the extent voluntary controls and procedures are being implemented and have been effective against the risks posed by ATSs. The Release asks whether existing measures—both regulatory and voluntary—are sufficient to address these risks and whether any other measures should be incorporated into Commission rules. The Release describes the risk controls in general “principles-based” terms, and seeks comment on whether the Commission should adopt a principles-based approach or a more granular approach.
2. SEC Actions with Respect to the Mitigation of Risk in an Automated Trading Environment.
The SEC has adopted and proposed regulations designed to address risks associated with the increasing interconnectedness of automated markets. In November 2010, the SEC adopted Rule 15c3-5, which requires broker-dealers with market access to an exchange or alternative trading system to implement pre-trade controls reasonably designed to manage the financial, regulatory, and other risks of such access.[11]
More recently, the SEC proposed Regulation Systems Compliance and Integrity (“Regulation SCI”) in March of this year,[12] which would require exchanges, certain alternative trading systems, clearing agencies, and plan processors to maintain policies and procedures reasonably designed to meet certain technology standards, and take appropriate corrective action if problems occur. The SEC also recently approved a National Market System Plan to implement a “limit up-limit down” mechanism to create “trading collars” to help limit abrupt market movements in individual securities.[13] The SEC also adopted amendments to the market-wide circuit breakers to provide for brief, coordinated, cross-market trading halts during a sharp decline in the securities market.[14]
III. POTENTIAL RISK CONTROLS DISCUSSED IN THE CONCEPT RELEASE.
The Commission solicits comment on the utility, costs and benefits associated with various risk controls that might be applied in the derivatives markets. In considering the scope and application of the potential risk controls, the Commission reiterates the need to determine the appropriate stage at which risk controls should be applied, noting that such controls might be applied by: (1) ATSs at the time of order generation; (2) clearing firms during the order transmission process; (3) trading platforms prior to exposing orders to the market; (4) DCOs; and (5) other risk control focal points (e. g., third-party “hubs”).
The Commission asks about the effectiveness of various potential risk controls, the degree to which industry participants already utilize the control, and whether there is a need for regulatory action to provide more uniform risk mitigation across CFTC-regulated markets. The Commission groups the potential controls into four broad categories: (1) pre-trade controls; (2) post-trade reports and other post-trade measures; (3) system safeguards; and (4) other potential protections.
A. Potential Pre-Trade Controls.
The Commission identifies seven pre-trade controls in the Concept Release that are intended to reduce market disruptions related to automated trading due to errors, system malfunctions or other events with similar effects. The Release states that to best address disruptions, the controls should apply at one or more of three points in the execution chain: (1) individual firms or traders; (2) intermediaries, including SDs, MSPs, FCMs, Floor Traders, Commodity Pool Operators (“CPOs”), and DCOs; and (3) exchanges. The Commission believes that redundancy in controls may permit individual entities to calibrate the relevant control in accordance with their own objectives and risk tolerances, and help respond to competitive and “race to the bottom” concerns. The Commission posed questions with respect to the following seven pre-trade controls:
1. Message and Execution Throttles.
Message rate and execution rate throttles (“execution throttles”) “prevent an algorithm from exceeding its expected message rate or rate of execution, and when tripped, can alert monitors at both an exchange and a trading firm.”[15] These controls can be used to rapidly detect malfunctioning algorithms and thus reduce the damages associated with disruptive algorithms. Execution throttles can also be used to mitigate the risk of manipulative or disruptive messaging strategies (e. g., “order stuffing”).
The Commission solicits comment on the manner in which the message rate should be determined for execution throttles and the process of aligning message rates with risk management capabilities. The Commission also seeks to understand the appropriate location for execution throttles and whether they should apply to all ATSs or just those using HFT strategies. Additionally, the Release seeks comment on who should be charged with setting message rates for products when they begin trading.
2. Volatility Awareness Alerts.
Volatility awareness alerts are triggered when prices in a given product move beyond a certain threshold within a specified time period, prompting human intervention. Different from trading pauses, the alerts would be used by market participants operating ATSs to identify and inform personnel of market conditions that may exceed an algorithm’s parameters, or may highlight unintended effects of an algorithm’s orders. The Commission asked how to minimize the risk of false alarms that might interrupt trading or cause human monitors to ignore them over time.
Controls that identify and limit self-trading are intended to provide more accurate indications of the level of market interest on both sides of the market and help ensure arm’s-length transactions that promote effective price discovery. The Commission asks whether all market participants should implement self - trading controls, how such controls should operate, whether there is a need for regulatory standards for such controls, and how granular the self-trading controls should be (e. g., set at the executing firm level or the trader level?).
The Commission described two types of price collars that can be implemented at the market participant and trading platform levels: (1) price collars on orders and (2) price collars on executions. The former prevent orders outside of acceptable price ranges from entering the order book. The latter prevent an order that is already in the book from being executed by the matching engine if it is outside of the acceptable range. The Commission is interested in comment on whether exchanges should adopt price collars for all listed contracts, and whether such collars would help mitigate credit risk to DCOs.
Maximum order sizes are intended to protect against the execution of an order for a quantity larger than a predetermined limit (i. e., so-called “fat finger” controls). The Commission noted that exchanges currently have this capability, but such controls may vary considerably, depending on product, product class, or clearing member. The Commission seeks comment on whether this technology should be standardized across exchanges, whether there should be regulatory standards for such technology, and whether other market participants, such as clearing firms and trading firms, should also be required to implement these systems.
Trading pauses are intended to mitigate price movements during instances of market volatility. The Commission identifies three potential triggers of trading pauses: (1) when the execution of resting orders would cause excessive price movements; (2) when prices move in excess of a dynamic threshold over a given time period; or (3) when prices have moved more than a given amount during the trading day. The Commission is interested in the effectiveness of the trading pauses currently in use, and whether any other types of pauses should be implemented.
Pre-trade credit risk limits can serve to limit the activity of malfunctioning ATSs. They may be applied by trading platforms, clearing firms, and/or market participants operating ATSs. The Release seeks comment on the appropriate scope, location and timing in the order lifecycle for credit checks. The Commission is especially interested in the strengths and weaknesses of using a “hub”[16] model for different types of pre-trade risk controls.
B. Potential Post-Trade Controls.
The Release notes that a comprehensive pre-trade control framework cannot guarantee against unexpected events. The Commission described certain post-trade controls to further mitigate the impact of unanticipated market events, such as: (1) order, trade and position reports from exchanges and DCOs; and (2) uniform trade cancellation and adjustment policies. The Commission seeks comment on the extent to which order and trade reports are currently offered, their value in implementing risk safeguards, and whether these reports should be standardized.
C. Potential System Safeguards.
The Release also discusses a range of system safeguards for trading platforms, clearing firms, and market participants (including ATSs). Such safeguards include: (1) controls related to order placement; (2) policies and procedures for the design, testing and supervision of ATSs; (3) self-certifications and notifications; (4) ATS or algorithm identification; and (5) data reasonability checks.
1. Controls Related to Order Placement: Order Cancellation Capabilities and Repeated Automated Execution Throttles.
Controls related to order placement, cancellation or throttling include: (1) auto-cancel on disconnect controls that cancel outstanding orders when the source of the orders lose connectivity; (2) selective working order cancellation controls that facilitate the cancellation of outstanding orders from a given algorithm, account, or desk; (3) kill switches that prevent orders from progressing downstream without human intervention; and (4) system heartbeats that facilitate the auto-cancel on disconnect requirement by indicating proper connectivity with the trading platform. For example, automated execution throttles would limit the number of orders an ATS can submit by automatically disabling the ATS and requiring human intervention once the pre-set maximum number of orders is reached. The required human intervention would independently verify the operation of an ATS to ensure that an algorithm’s strategy is operating as anticipated and that the algorithm is responding appropriately to current market conditions. The Commission is particularly interested in comments regarding the benefits of kill switches, and how they should be implemented by exchanges, trading, and clearing firms.
2. Policies and Procedures for the Design, Testing and Supervision of ATSs.
The Commission also discusses whether more standardized procedures related to system development, change management, testing, monitoring, supervision, training, and crisis management would benefit the markets and the public.
uma. ATS and Exchange System Development, Change Management, and Testing.
The Commission discusses requiring market participants operating ATSs to test such systems both internally and on each trading platform on which an ATS will operate. Each algorithm would be required to be tested prior to initial deployment and re-deployment. Additionally, trading platforms would be required to provide test environments that simulate the production trading environment. The Commission requests comment on the necessary elements of an effective ATS testing regime and the challenges or benefits provided by standardized development, change management and testing procedures for exchange systems.
b. Monitoring, Supervision, and Training.
The Commission also discusses monitoring, supervision and testing procedures related to ATSs. For example, the Commission discusses providing real-time monitoring and supervision by trained and qualified staff at all times when the ATS is engaged in trading. Specifically, the Commission is interested in better understanding whether regulatory measures or new training standards would promote more effective monitoring and supervision of ATSs.
c. Crisis Management.
The Concept Release highlights the need for well-designed crisis management procedures. Specifically, the Commission asks whether crisis management procedures should be standardized across market participants, and whether there are core requirements that should be included in such procedures.
3. Self-Certifications and Notifications.
uma. Self-Certification and Clearing Firm Certification.
The Commission also asks about the possibility of requiring periodic self-certifications from all market participants operating ATSs and clearing firms providing services to those market participants. A certification program might require market participants operating ATSs to attest, on an annual basis, to the extent of implementation of the applicable risk controls. Additionally, clearing firms might be required to institute reasonable measures to validate that their clients employ the required risk controls. The Commission questions whether a market participant’s chief executive officer, chief compliance officer, or other similarly ranked representative should be required to provide the attestation and by whom the certifications should be audited—DCMs, SEFs or clearing firms.[17]
b. Risk Event Notification.
The Commission discusses whether market participants operating ATSs and trading platforms should be required to inform other entities, including the Commission, of certain risk events. Reportable risk events might include the operation of an ATS in violation of design parameters and any risk control process or technology malfunction.[18]
Proposed Regulation SCI would require “SCI entities” to provide notice to the SEC with regard to “SCI events,” take corrective action regarding such events, and disseminate information related to the event to members or participants. The proposal defines an “SCI event” as “an event at an SCI entity that constitutes: (1) a systems disruption; (2) a systems compliance issue; or (3) a systems intrusion.”
4. ATS or Algorithm Identification.
The Concept Release also discusses and seeks comment on measures to identify, in ATS generated messages, the originating ATS or underlying algorithms in order to more quickly identify malfunctioning systems that could disrupt markets. For example, all orders submitted by an ATS algorithm could be tagged with a unique identifier.
5. Data Reasonability Checks.
Citing the recent adverse market impact of “false information through the unauthorized use of a social media outlet used by the Associated Press,”[19] the Commission expresses interest in the potential for data reasonability checks on incoming data, including, without limitation, market data. The Commission specifically asks whether there are potentially market-moving non-governmental economic reports for which early disclosure should not be permitted.[20]
D. Other Potential Protections.
In addition to the aforementioned controls, reports, and system safeguards, the Commission highlighted and solicited comment on the registration of firms operating ATSs, provision of market quality data, provision of market quality incentives, establishment of policies and procedures to identify “related contracts,” and standardization and simplification of order types.
1. Registration of Firms Operating ATSs.
The Commission seeks comment on whether firms using ATSs in CFTC-regulated markets that are not otherwise registered with the CFTC should be required to register as “floor traders” under CEA section 1a(23). The Commission also solicits comment on whether software firms providing algorithms should be required to register and the potential authority for such a requirement.
The Commission discusses requiring each trading platform to provide daily market quality indicators for each product traded on its platform in order to enable market participants to better understand market stability and efficiency, liquidity, and order flow. Among other metrics, such indicators might include information with respect to effective spreads, order to fill ratios, execution speeds for different types and sizes of orders, and order rejection ratios. Such information could help market participants to make more informed decisions with respect to their trading strategies and mitigate potential adverse effects of their actions on other market participants.
3. Market Quality Incentives.
The Commission also expresses interest in ways to incentivize enhanced market quality and price discovery. For example, such measures might include rewarding market makers for leaving resting orders in the order book for a longer period of time, and ensuring that automated traders place orders based on their knowledge of the economic value of the asset being traded, rather than their knowledge of order book dynamic or other market participants’ trading patterns. The Commission also asked whether there should be a minimum time period for orders to remain on a limit order book.
4. Policies and Procedures to Identify “Related Contracts”
To protect against market disruptions on one platform causing market disruptions on other platforms, the Commission discussed the obligation of DCMs to identify “related” contracts under CFTC Regulation 38.255 (trading risk controls). Specifically, Appendix B of Regulation 38.255 provides guidance requiring all DCMs to coordinate their risk controls with respect to “related” contracts. The Commission requests DCMs to describe whether they have fully implemented this guidance, and seeks comment on whether it would be beneficial for each exchange to review the contracts traded on other exchanges to identify linked or substitute contracts.
5. Standardize and Simplify Order Types.
The Commission discusses the possibility of reviewing current and proposed order types to consolidate, standardize, and simplify order types that have complex logic embedded within them. The Commission asks whether the standardization of order types across platforms would simplify system testing and thereby reduce the potential for instability due to the unanticipated interaction of multiple ATSs utilizing various means of execution within an order book.
The Concept Release discusses a wide range of issues associated with the use, control, and potential further regulation of automated trading systems. Considering the Commission’s expressed interest in alleviating the risk and frequency of market disruptions that undermine the efficiency of the markets, future regulatory action in this arena is likely. It is in the interests of market participants to provide the Commission with responses to the most relevant questions throughout the Release to assist in guiding any potential regulatory action. In addition, with the CFTC and SEC each having responsibility for the oversight of two separate, but interrelated markets, it seems particularly important that market participants identify those areas in which the regulators should closely consider the practical effects of proposed regulatory action in one market on the other.
1. Concept Release, 78 Fed. Reg. 56,542, 56,551 (Sept. 12, 2013), available at cftc. gov/ucm/groups/public/lrfederalregister/documents/file/2013-22185a. pdf.
2. The Commission highlighted the May 2010 Flash Crash, the Knight Capital Group software malfunction, and the technical issues associated with Nasdaq’s commencement of trading after the Facebook IPO. In the Commission’s view, these events illustrate the technological and operational vulnerabilities inherent to automated trading environments. With regard to automated trading systems (“ATSs”), the Commission identified the existence of vulnerabilities with respect to “algorithm design flaws, market conditions outside of normal operating parameters, the failure of built-in risk controls, operational failures in the communication networks on which ATSs depend for market data and connectivity with trading platforms, and inadequate human supervision.” Id . at 56,548-550.
3. Andre Owens et al., SEC Gets SCI-entific About Trading Systems with Proposed Regulation SCI, WilmerHale (Mar. 27, 2013), available at wilmerhale/pages/publicationsandnewsdetail. aspx? NewsPubId=10737420831; Andre Owens et al., SEC Adopts the Consolidated Audit Trail Rule, WilmerHale (Oct. 1, 2012), available at wilmerhale/pages/publicationsandnewsdetail. aspx? NewsPubId=112818; Elizabeth Derbes & Andre Owens, SEC Adopts Rule Requiring Large Trader Reporting, WilmerHale (Aug. 1, 2011), available at wilmerhale/pages/publicationsandnewsdetail. aspx? NewsPubId=92931; Andre Owens et al., SEC Proposes Broad Changes for Broker-Dealers with Direct Access to ATSs and Exchanges, WilmerHale (Feb. 3, 2010), available at wilmerhale/pages/publicationsandnewsdetail. aspx? NewsPubId=93576; Andre Owens et al., SEC’s Equity Market Structure Concept Release Highlights Potential New Regulatory Initiatives, WilmerHale (Jan. 20, 2010), available at wilmerhale/pages/publicationsandnewsdetail. aspx? NewsPubId=87416.
4. In the SEC context, “ATS” refers to an “alternative trading system.” Regulation ATS defines an alternative trading system to be any organization, association, person, group of persons, or system: “(1) That constitutes, maintains, or provides a market place or facilities for bringing together purchasers and sellers of securities or for otherwise performing with respect to securities the functions commonly performed by a stock exchange within the meaning of § 240.3b-16 of this chapter; and (2) That does not: (i) Set rules governing the conduct of subscribers other than the conduct of such subscribers’ trading on such organization, association, person, group of persons, or system; or (ii) Discipline subscribers other than by exclusion from trading.” 17 C. F.R. § 242.300 (2013).
5. Although this has been the case historically, ATSs (including HFT systems) may be employed with respect to swaps traded on a swap execution facility (“SEF”).
6. Concept Release, supra note 1 at 56,545. The SEC similarly has refrained from providing a definition of HFT. Rather, like the TAC, the SEC has identified attributes of HFT, including:
(1) the use of extraordinarily high-speed and sophisticated computer programs for generating, routing and executing orders; (2) use of co-location services and individual data feeds offered by exchanges and others to minimize network and other types of latencies; (3) very short timeframes for establishing and liquidating positions; (4) the submission of numerous orders that are cancelled shortly after submission; and (5) ending the trading day in as close to a flat position as possible (that is, not carrying significant, unhedged positions overnight).
Concept Release on Equity Market Structure, Exchange Act Release No. 61, 358, 75 Fed. Reg. 3,594, 3,606 (Jan. 21, 2010).
7. In this context, latency is the measure of the time delay between the actual occurrence of an event (for example, an execution) and receipt of notice of that event.
8. Concept Release, supra note 1 at 56,547.
9. 17 C. F.R. § 38.255 (2013).
10. Concept Release, supra note 1 at 56,548 (citing Core Principles and Other Requirements for Designated Contract Markets, RIN 3038–AD09, 77 Fed. Reg. 36,612, 36,648 (June 19, 2012)).
11. 17 C. F.R. § 240.15c3-5 (2013); see also Risk Management Controls for Brokers or Dealers with Market Access, Exchange Act Release No. 63,241, 75 Fed. Reg. 69,792 (Nov. 15, 2010).
12. See Regulation Systems Compliance and Integrity, Exchange Act Release No. 69,077, 78 Fed. Reg. 18,084 (Mar. 25, 2013) [hereinafter “Proposed Reg. SCI”].
13. See Order Approving, on a Pilot Basis, the National Market System Plan to Address Extraordinary Market Volatility by BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., Financial Industry Regulatory Authority, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, The Nasdaq Stock Market LLC, National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc., Exchange Act Release No. 67,091, 77 Fed. Reg. 33,498 (May 31, 2012); Notice of Filing and Immediate Effectiveness of the Second Amendment to the Limit Up-Limit Down Plan, Exchange Act Release No. 68,953, 78 Fed. Reg. 13,113 (Feb. 26, 2013); Order Approving the Third Amendment to the Limit Up-Limit Down Plan, Exchange Act Release No. 69,287, 78 Fed. Reg. 21,483 (Apr. 10, 2013).
14. See Notice of Filing of Amendments No. 1 and Order Granting Accelerated Approval of Proposed Rule Changes as Modified by Amendments No. 1, Relating to Trading Halts Due to Extraordinary Market Volatility, Exchange Act Release No. 67,090, 77 Fed. Reg. 33,531 (June 6, 2012). The operative date of the revised circuit breakers was delayed from February 4, 2013 to April 8, 2013; see, e. g., Notice of Filing and Immediate Effectiveness of Proposed Rule Change Delaying the Operative Date of a Rule Change to NYSE Rule 80B, Which Provides for Methodology for Determining When to Halt Trading in All Stocks Due to Extraordinary Market Volatility, From the Date of February 4, 2013, Until April 8, 2013, Exchange Act Release No. 68,784, 78 Fed. Reg. 8,662 (Feb. 6, 2013).
15. Concept Release, supra note 1 at 56,553.
16. The “hub model” entails the use of third-party “hubs” through which orders or order information could flow to uniformly mitigate risks across one or more trading platforms. See id . at 56,544.
17. Securities Exchange Act of 1934 Rule 15c3-5 requires the chief executive officer of a broker-dealer providing market access to annually certify that the risk management controls and supervisory procedures comply with Rule 15c3-5, and that a regular review of the procedures has been conducted.
18. Proposed Regulation SCI would address risk event notifications with respect to the securities activities of “SCI entities.” An SCI entity would be defined as a securities self-regulatory organization, SCI alternative trading system, plan processor, or exempt clearing agency subject to the SEC’s automated review policy. See Proposed Reg. SCI, supra note 12 at 18,092.
19. Concept Release, supra note 1 at 56,560.
20. See Concept Release, supra note 1 at 56,560 (“While government reports are released pursuant to a lock-up process that is intended to ensure that no entity receives them ahead of others, it has been reported that early access to some non-government economic reports is available for a fee. For example, according to recent reports, the University of Michigan’s consumer report was available to certain investors two seconds ahead of the rest of the market.”).
The original memo was published by WilmerHale on October 7, 2013 and is available here.