The CFTC’s Failure to Address Electronic Trading Risks

Leaves Derivatives Markets Vulnerable to Flash Crashes

Washington, D.C.  –  Joseph Cisewski, Senior Derivatives Consultant and Special Counsel at Better Markets, issued the following statement with respect to the Commodity Futures Trading Commission’s (CFTC) finalized regulations governing electronic trading risks:

“This morning, the CFTC finalized ‘new’ electronic trading regulations that will do almost nothing new to address electronic trading risks. In fact, the final regulations are largely redundant measures masquerading as meaningful action.

“During the open meeting, the CFTC staff and certain CFTC commissioners all but confirmed this reality, emphasizing an incredible belief that derivatives exchanges are already doing much, if not all, that is required to address electronic trading risks. Yet, the three-sentence, principles-based final regulations would leave numerous market structure frailties and electronic trading practices unaddressed and would not comprehensively address risks associated with electronic order origination, programming, transmission, and execution.

“Furthermore, the minimal regulations are only the latest CFTC actions to reveal a near obsession with industry self-policing. The rules essentially defer to for-profit exchanges to adopt, or not adopt, whatever electronic trading measures they deem reasonable. However, as we explained in our blog post and comment letter on the CFTC’s proposal, exchanges have shareholders and conflicts of interest that may constrain efforts to responsibly limit disruptive, but profitable, electronic trading practices.

“When the inevitable next Flash Crash occurs, the CFTC’s determination to knowingly leave numerous market structure frailties and disruptive trading practices unaddressed will be closely scrutinized. Hopefully, the CFTC responsibly changes course in 2021 and takes meaningful steps to address electronic trading risks before that happens.”

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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.