CFTC Proposes Rulemaking Regarding Automated Trading: CFTC Proposes Regulation AT to Impose Registration, Pre-Trade Risk Control and System Safeguard Requirements for Automated Trading Firms and Related Obligations for Clearing Members and Exchanges

Sullivan & Cromwell LLP - December 2, 2015

On November 24, 2015, the Commodity Futures Trading Commission (the “CFTC” or “Commission”) voted unanimously to issue proposed rules to implement a framework of registration, compliance, recordkeeping and reporting rules for market participants engaging in algorithmic (or automated) trading activity.  The proposal would also impose algorithmic trading compliance and oversight obligations on clearing member futures commission merchants (“clearing member FCMs”) and designated contract markets (“DCMs” or “exchanges”) and would impose a range of new requirements on DCMs.  The proposed algorithmic trading rules (collectively, proposed “Regulation AT”), which would largely codify a range of existing industry best practices, follows the CFTC’s September 2013 Concept Release on Risk Controls and System Safeguards for Automated Trading Environments, in which the Commission originally solicited public comments on how best to address the transition to an automated and interconnected trading environment.