High-Frequency Traders Can Keep Code Secret Under New CFTC Rule

U.S. derivatives regulators have approved regulations for high-frequency trading that exclude a controversial plan that would have increased government access to traders’ computer code.

The Commodity Futures Trading Commission regulation adopted Tuesday largely tracks with the agency’s June proposal and will formally require exchanges to take steps aimed at thwarting unintentional disruptions due to algorithmic trading. Instead of targeting code that traders consider to be intellectual property, the CFTC’s “risk principles” aim to codify many practices that are already in place.

Key Details

  • CFTC Chairman Heath Tarbert said in a statement that “principles-based regulations in this area will ensure that exchanges have reasonable discretion to adjust their rules and risk controls as the situation dictates, not as the regulator dictates.”
  • Commissioners voted 4-1 to approve the regulations during a virtual meeting.
  • Exchanges will be required to have rules that “prevent, detect and mitigate market disruptions and system anomalies associated,” Tarbert said.
  • Tarbert, a Republican, said the firms will also need to have risk controls for electronic orders and notify the CFTC of “significant market disruptions.”
  • The principles could serve as the basis for future regulations by the agency, the chairman said.
  • Democratic Commissioner Rostin Behnam voted against the plan, arguing in a statement that the agency should do more to regulate electronic trading.
  • “We need to be proactive,” Behnam said.

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