The U.S. Commodity Futures Trading Commission today published a Concept Release on Risk Controls and System Safeguards for Automated Trading Environments in the Federal Register. The Release is intended to serve as an overview of potential measures that may be able reduce the likelihood and mitigate the impact of market disrupting events.
The Release provides a summary of the automated trading environment, discusses current industry practices, examines their effectiveness, and evaluates the need for any additional and appropriate measures.
Automated trading systems have been a popular topic of discussion after recent disruptive events such as Knight Capital’s errant trades causing a loss of $440 million and the disruption of trading on the Nasdaq stock market from malfunctions in quote dissemination systems.
The Release also examines risk controls that could be implemented by exchanges and participants in automated trading environments. This includes pre-trade risk controls, post-trade reports and other post trade measures, system safeguards related to the design, testing and supervision of automated trading systems, and additional protections designed to promote safe and orderly markets.