The Commodities Futures Trading Commission agreed Friday to supplement proposed rules on automated trading with additional changes, including a controversial requirement that money managers disclose algorithm codes to the agency. The supplemental rule-making was approved by a 2-1 vote.
Dissenting Commissioner J. Christopher Giancarlo said before the vote that while the proposed Regulation Automated Trading “is a well-meaning attempt … to catch up to the digital revolution in U.S. futures markets,” there were regulatory inconsistencies and “any public good achieved by the rule is undone by the now-notorious source code repository requirement.”
The global trade organization FIA, which represents futures, options and centrally cleared derivatives markets, expressed “grave concerns” about the decision, which it said in a statement “would permit an unacceptable level of access to proprietary source code used to operate automated trading systems.”
FIA and other groups had argued that access to source code should require a subpoena. “Source code deserves the same protections under the law as any other form of intellectual property,” said Walt Lukken, FIA president and CEO, in a statement. “We’re very disappointed that the commission ignored the view expressed by a wide range of market participants as well as technology companies outside this industry.”
The supplemental changes proposed Friday would also reduce the level of risk controls to avoid burdening smaller market participants, and create a minimum trading volume test for compliance. Comments on the supplemental rule-making are due in 60 days.
The CFTC in December first proposed rule-making on automated trading.