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Regulatory Access to Trading Algorithms is Overkill

1 22 June 2016 Be the first to comment

Retired member

The former CFTC commissioner Bart Chilton went on record with CNBC saying that the Source Code requirements in Regulation Algorithmic Trading (REG-AT) is extreme overkill and a very slippery slope.

Many in the listed derivatives trading industry strongly believe that ideas and methods that are expressed in our Source Code is critically important and extremely sensitive. It is our proprietary information. As such it should be provided with the utmost the highest level of legal (and governmental) protection.

Requiring the government to have full access to proprietary code bases is indeed a slippery slope even outside of the trading industry.

Once the CFTC sets the precedent, then what next? What other government employees will have access to proprietary trade secrets that many internal staff at the trading firms don’t have access.

Bart has made a very compelling argument here.

See CNBC for the full story.

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Financial Services Regulation

This network is for financial professionals interested in staying up to date on financial services regulation happening anywhere in the world. CFOs, bankers, fund managers, treasurers welcome.

567 opinions 69 members 05 December 2024

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A Finextra member

27 June 2016

The Alternative Investment Management Association formerly stated to the CFTC:

"Overall, AIMA members are supportive of an obligation for AT Persons to maintain internal source code repositories. It is existing best practice for AT firms to maintain a proportionate change management audit trail for material changes to their production algorithms. Such an audit-trail obligation is also due to be introduced on 3 January 2018 under Article 5 of MiFID II RTS 6 which specifies that investment firms must maintain records of material changes to software, including: (a) when a change is made; (b) the nature of the change; (c) who made the change; and (d) who approved the change.

However, our members strongly disagree and have significant security concerns about the Regulation AT proposal for firms’ source code and related documents to be available for summary inspection by the Commission and Department of Justice (DoJ). We note that no equivalent obligation is due to be introduced under MiFID II and is not a current obligation in any other major jurisdiction. We do not believe that any attempt to undertake ex ante review of source code by the CFTC would be an efficient or effective way to monitor and protect DCMs from abuse or disorder. In terms of the potential for source code to behave abusively or to exacerbate market disorder, we consider that the central role ought to be played by Clearing FCMs, other DEA providers and the DCMs themselves by providing adequate test functionality to help ensure that all algorithms used in live markets are sufficiently tested for stability and propensity for abusive behaviour."

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