The Commodity Futures Trading Commission supplemental notice regarding Regulation Automated Trading was published in the Federal Register on November 25. Comments are due by January 24, 2017. (Click here for an initial analysis of the CFTC’s supplement proposal in the article, “Proposed Regulation AT Amended by CFTC; Attempts to Reduce Universe of Most Affected to No More Than 120 Persons” in the November 6, 2016 edition of Bridging the Week.)

My View: The sincere and valiant effort of CFTC staff to address many of the industry’s concerns in the originally proposed Regulation AT has, in many instances, created an even more confused regulatory proposal that is likely to capture far more than the intended number of market participants. (Click here for some of my additional insight regarding failings in the CFTC’s supplemental notice in the article, “Additional Musings on the CFTC’s Supplemental Proposal Regarding Regulation AT” in the November 13, 2016 edition of Bridging the Week.) The fundamental issue is that Regulation AT continues to try to do too much, particularly in an area where exchanges have robust rules and the industry has voluntarily instituted many best practices. Indeed, as an example, CME Group already has a rule that holds members and non-members liable for not supervising their agents, while agents, at CME Group, include “any automated trading systems…operated by any party.” These provisions already provide great incentive for members and non-members to associate robust risk controls with their AT systems, and to ensure that they are appropriately tested and monitored. (Click here for details regarding these CME Group obligations in the article, “CME Group Settles With Trading Firm for Spoofing-Type Offenses, Holding It Strictly Liable for Acts of Agents; Orders Disgorgement of Profits” in the October 9, 2016 edition of Bridging the Week.) The CFTC should use the opportunity to re-review the existing landscape of regulatory requirements by exchanges and to, as necessary, amend obligations of exchanges under core principles to fine tune their existing requirements to ensure that legitimate objectives of the CFTC are achieved. There is no reason for the CFTC to institute a duplicative and confusing regime.