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CFTC Adopts Final Rule on Electronic Trading Risk Principles

December 15th | 2020


At the CFTC’s recent open meeting, the commissioners approve its Proposed Rule on Electronic Trading Risk Principles, which are intended to limit potential market disruptions arising from system errors or malfunctions in electronic trading. In contrast to previous legislation, the new proposal takes a principles-based approach rather than a prescriptive one. The final rules and amendments CFTC Regulation Part 38 set forth three principles applicable to designated contract markets (DCMs) concerning:

  1. the implementation of exchange rules applicable to market participants to prevent, detect, and mitigate market disruptions and system anomalies associated with electronic trading;

  2. the implementation of exchange-based pre-trade risk controls for all electronic orders; and

  3. prompt notification to Commission staff of any significant market disruptions on their electronic trading platforms.

The new rules also include acceptable practices, which provide that a DCM can comply with these principles by adopting and implementing rules and risk controls reasonably designed to prevent, detect, and mitigate market disruptions and system anomalies associated with electronic trading.

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