CFTC goes ahead with algo disclosure rules

The CFTC will be able to access traders source codes without a subpoena. 

The US derivatives watchdog will still go ahead with rules requiring traders to disclose their source code for their algorithmic trades.

The Commodity Futures Trading Commission (CFTC) will be able to access the source code, also known as the ‘secret sauce’, for algorithmic or high-speed, automates trades, without a subpoena.

The rule is part of the revised “Regulation Automated Trading” (RegAT), after critics argued the original proposal could threaten the confidentiality of traders algos.

Timothy Massad, chairman of the CFTC, explained that access to source codes would give the regulator a better understanding in the world of high frequency trading and of ‘flash crash’ events.

“Our proposal is designed to minimise the risk of disruption and other problems that can be caused by algorithmic trading, and to make sure we have the tools to deal with those problems should they occur,” said Massad.

“It requires testing and monitoring of algorithms. It requires the preservation of source code and other records — the equivalent of the records that those trading at human speed have preserved for years. And it ensures that we would have access to such records when necessary, just as for years we have reviewed the records of traders at human speed.”

However, the CFTC has received further criticism from industry associations over the revised ruling.

Walt Lukken, CEO and president of the Futures Industry Association (FIA), stated that the association “cannot support the proposed source code provision”.

“We’re very disappointed that the Commission ignored the view expressed by a wide range of market participants as well as technology companies outside this industry that access to source code should require a subpoena.

“Source code deserves the same protections under the law as any other form of intellectual property. The proposed special call process simply does not meet that standard.”