The top U.S. derivatives regulator is poised to announce a range of potential methods for overseeing automated and high-frequency trading, according to four people with knowledge of the matter.
The Commodity Futures Trading Commission’s four members are within days of approving the concept release, according to the people who spoke on condition of anonymity because the document isn’t yet public. Approval of the release, a step prior to proposing new rules, would trigger a public-comment period.
The agency, along with the Securities and Exchange Commission, has scrutinized high-frequency and algorithmic trading since May 6, 2010, when $862 billion in equity value was erased in 20 minutes before share prices recovered. The CFTC’s release, which has been debated for more than a year, would seek comment on new testing, supervision and risk controls for automated trading, CFTC Chairman Gary Gensler said in April.
A number of recent computer malfunctions have raised questions about the reliability of electronic markets. The latest occurred yesterday, when malfunctioning software that feeds data between exchanges prompted the Nasdaq Stock Market to halt trading in thousands of stocks and options.
Dennis Holden, a CFTC spokesman, declined to comment on the concept release. The CFTC has scheduled a technology advisory committee meeting on Sept. 12 to discuss the automated trading concept release as well as swap-trading and record-keeping.
The agency is also preparing to vote on regulations that would restrict large trades in the futures market. The agency is circulating draft rules that would set restrictions on how large trades, known as blocks, are conducted on exchanges operated by CME Group Inc. (CME:US) and Intercontinental Exchange Inc. (ICE:US), according to the people, who spoke on condition of anonymity because the measures have not been released to the public..
Meanwhile, the agency is working to complete rules to increase oversight of customer funds following the 2011 collapse of MF Global Holdings Ltd., and publish a new proposal for limits on speculation in oil, natural gas and other commodities.
The pending rules are some of the first the agency is considering as it moves beyond rules required by the 2010 Dodd-Frank Act, which seeks to reduce risk and increase transparency in the swaps market. Largely unregulated swaps helped fuel the 2008 credit crisis that led to the collapse of Lehman Brothers Holdings Inc. and a U.S. rescue of New York-based American International Group Inc.
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