By Rob Daly

CFTC Considers Regulation AT Tweaks

The US Commodity Futures Trading Commission is contemplating a few changes to the regulator’s controversial Regulation AT, according to CFTC Chair Timothy Massad and who spoke at a conference hosted by the New York Federal Reserve Bank in lower Manhattan.

Under the initial version of Regulation AT, the CFTC proposed establishing risk controls at the exchange, futures commission merchant, and at the trading firm levels. However, many commenters viewed this approach as too burdensome and complicated.

Timothy Massad, CFTC

Timothy Massad, CFTC

“Instead they favored a two-tier structure, which I’m willing to support,” said Massad. “That is, I would support requiring risk controls at the exchange level and either the trader or FCM level. A trading firm could have its own controls or opt into the FCM controls.”

Another possible change that the CFTC is examining would address Regulation AT’s registration requirement, which many industry participants have said is too broad.

Massad is adamant that Regulation AT must focus on the most active firms and the regulator is scrutinizing a possible a volumetric test for those firms falling under the Regulation AT umbrella.

“Today in our markets, a smaller number of traders can represent a large percentage of total trading volume, including during these periods of high volatility,” he noted. “For example, the evening after the Brexit vote, the 10 most active firms represented approximately 60 percent of trade activity in the British pound futures. Without a registration requirement, we cannot make sure that some of the biggest traders in our markets are following the basic risk controls that our proposal calls for.”

However, the CFTC will not drop Regulation AT’s  most controversial requirement regarding trading algorithms.

“I do expect we will address some of the concerns we’ve heard about the proposal’s requirements for registration and the preservation of and access to source code,” Massad said in his keynote address at the Futures Industry Association’s Futures and Options Expo in mid-October. “We won’t be doing away with either requirement, but we are considering changes that address some of the concerns while ensuring our regulatory goals are still met.”


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