The Commodity Futures Trading Commission held a public meeting on Oct. 26 to consider a number of rulemakings related to the Dodd-Frank Act. During the meeting the CFTC approved for publication an “advanced notice of proposed rulemaking” to implement a provision in Dodd-Frank that authorizes the CFTC to prohibit trading practices that are “disruptive of fair and equitable trading.” The notice is essentially a formal request for information to help guide the CFTC staff as they implement the prohibition. The notice asked for comment on 19 specific questions, including what rules should be applied to algorithmic trading systems and whether executing brokers should have an obligation to ensure that
To gather additional public input on this issue, CFTC Chairman Gary Gensler announced that the agency will hold a staff roundtable on Dec. 2 to discuss disruptive trading practices with market participants and other experts. Gensler also said this rulemaking will benefit from the input of the joint CFTC-SEC advisory committee on emerging regulatory issues, which has been examining the so-called
One area of inquiry is the definition of disruptive trading practices. According to the CFTC, Dodd-Frank defines this term to include any activity that “violates bids and offers, demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period, … or is commonly known to the trade as ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).” The CFTC notice asked if any other trading practices should be included besides these three.
CFTC Commissioner Bart Chilton asked the staff to include an additional question to the notice requesting comment on whether algorithmic traders should be held “accountable” for disrupting markets. CFTC Commissioner Jill Sommers said this rulemaking uses a number of terms that are “less than clear” and said public input through comment letters and the staff roundtable on Dec. 2 would be “very important” in
The deadline for submitting comments on the notice is 60 days after publication in the Federal Register.