Regulation Automated Trading (Reg AT) is the Commodity Futures Trading Commission’s (CFTC) attempt to provide rules around the ever-changing and growing automated trading environment on the US Futures Exchanges.
Many of the proposed regulations and safeguards are already in place and have been for years, but through Reg AT the CFTC is taking the opportunity to update and define some of the registration requirements that have come to the forefront in the age of automated and algorithmic trading.
In TABB Group’s latest research, “Big Brother Is Watching: The Implications of CFTC Reg AT for the Futures Industry,” TABB senior analyst Tom Lehrkinder (pictured) takes an in-depth look at what mandates the CFTC has in store and what the costs to the industry will be. One of the most important components of the regulation, according to TABB, is the formalisation and automation of pre-trade risk management. The research also discusses the CFTC proposal to expand registration requirements to now include a new category of traders under the AT Person moniker, though formal supervision at the AT Person level will put a strain on the smaller firms.
Lehrkinder explains that though the CFTC is cognisant of the expenditure related to Reg AT and wants to ensure that the costs are appropriate versus the benefit, it has not fully grasped what the financial impact will be. Based on industry estimates for 100 firms, TABB expects the cost to the industry for initial implementation of Reg AT to be USD15 million and to surpass USD2 million annually for ongoing compliance, exceeding CFTC estimates.
“The CFTC is putting the futures community on notice that transparency has become the status quo, and the long arm of regulation is reaching further. What remains to be seen is whether the mandates will create a benefit to the markets versus the overall compliance price once Reg AT is implemented,” says Lehrkinder.
/p>
