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CFTC Proposed Rule on Electronic Trading Risk Principles

September 4th | 2020


At the CFTC’s recent open meeting, the commissioners voted 4-1 to propose a rule to limit potential market disruptions arising from system errors or malfunctions in electronic trading. CFTC Chairman Heath P. Tarbert released a statement in support of the Proposed Rule on Electronic Trading Risk Principles, which requires exchanges to take steps to prevent, detect, and mitigate market disruptions and system anomalies associated with electronic trading. In contrast to previous legislation, the new proposal takes a principles-based approach rather than a prescriptive one.


The CFTC’s new proposal boils down to three Risk Principles: First, exchanges must have rules to prevent, detect, and mitigate market disruptions and system anomalies associated with electronic trading; second, exchanges must have risk controls on all electronic orders to address those same concerns; and third, exchanges must notify the CFTC of any significant market disruptions and give information on mitigation efforts.


Notably, the CFTC voted 3-2 in favor of withdrawing of Reg. AT, which was the agency’s last attempt at similar legislation several years ago. Reg. AT was controversial because it required certain automated trading firms to register with the CFTC and would have required those firms to produce their source code upon request and without a subpoena.

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