The Commodity Futures Trading Commission has issued a concept release on risk controls and system safeguards for automated trading environments. The release provides an overview of recent market events and existing industry practices regarding automated trading systems (ATSs), and requests comment on a series of questions relating to a number of potential risk controls and safeguards, including:

  • Pre-trade risk controls, such as message and execution throttles, volatility awareness alerts, self-trade controls, price collars, maximum order sizes, trading pauses and credit risk limits;
  • Post-trade reports and other post-trade measures, such as standardized order, trade and position reporting and trade cancellation or adjustment policies; and
  • System safeguards, such as order cancellation capabilities, repeated automated execution throttles, policies and procedures for the design, testing and supervision of ATSs, the advisability of mandatory “kill switches” for ATSs, self-certifications and notifications and data reasonability checks.

The concept release also includes a handful of other proposals, notably including potential registration of firms operating or providing ATSs, market quality data, market quality incentives, policies and procedures to identify “related contracts,” order type standardization and simplification and the definition of high-frequency trading.

Comments on the concept release must be filed by December 11, 2013. The concept release is available here.