In his first public speech since becoming a Commissioner of the Commodity Futures Trading Commission, Brian Quintenz called the Commission’s recently proposed and re-proposed Regulation Automated Trading “one of the most serious, missed opportunities of the agency’s prior pending rulemakings.”
According to Mr. Quintenz, the CFTC proposal to term registrants under Reg AT “Algorithmic Trading Persons” ignored that “[n]ot all algorithmic trading strategies have completely automated functionality.” He claimed his dislike of Reg AT was “not just semantics.” Rather, he said, the identification of registrants as Algorithmic Trading Persons evidenced “a top level disregard for the enormity of the trading method spectrum and, therefore, a disregard for the proper assessment of market risk posed throughout the broad spectrum.”
Mr. Quintenz argued that the CFTC should not “regulate and dictate all algorithmic trading activity.” Instead, he said, the agency should try to comprehend and deal with automated trading risk. Additionally, Mr. Quintenz indicated that the CFTC’s original proposal to require algorithmic source code to be maintained in a special repository was “D-E-A-D!”
Mr. Quintenz, who recently was appointed head of the Commission’s Technology Advisory Committee by CFTC Chairman J. Christopher Giancarlo, also said that he looked forward to reviewing Bitcoin and Bitcoin’s “broader technology” through the TAC. He warned, however, that although the meaning of “actual delivery” in the context of cryptocurrencies might be unclear and a topic he wishes to address at the TAC, platforms selling Bitcoin to retail persons on a margined, leveraged or financed basis must be aware that, unless there is actual delivery within 28 days, the CFTC would expect such platforms to register with it as futures commission merchants.
Mr. Quintenz delivered his remarks before the Symphony Innovate 2017 conference on October 4.
Legal Weeds: In June 2016, BFXNA Inc., doing business as Bitfinex, agreed to settle charges brought by the CFTC that, from approximately April 2013 through at least February 2016, it allegedly engaged in prohibited, off-exchange commodity transactions with retail clients and failed to register as an FCM, as required. According to the CFTC, during the relevant time period, Bitfinex “operated an online platform for exchange and trading cryptocurrencies, mainly Bitcoins.” The CFTC said that Bitfinex’s platform allowed users that were not eligible contract participants to borrow funds to purchase Bitcoin from other platform users. (Click here for background in the article “Bitcoin Exchange Sanctioned by CFTC for Not Being Registered” in the June 5, 2016 edition of Bridging the Week.)
In 2015, the CFTC filed and settled charges against Coinflip, Inc. and Francisco Riordan, its founder and chief executive officer, for operating a trading facility for Bitcoin options – Derivabit – without it being registered as a swap execution facility or a designated contract market. According to the CFTC, because Bitcoin and other virtual currencies are “properly” defined as “commodities” under applicable law, all trading facilities for commodity options on Bitcoin must be registered with it as a SEF or a DCM. The CFTC charged that when, from at least March 2014 through July 2014, Coinflip operated Derivabit as a trading facility for Bitcoin options without proper registration, it violated applicable law. (Click here for background in the article “CFTC Says Virtual Currencies Are a 'Commodity' Under Federal Law, Files Charges Against Coinflip for Operating an Unregistered Bitcoin Options Trading Platform” in the September 20, 2015 edition of Bridging the Week.)