FOOTNOTE 92 See FIA Recommendations for Risk Controls, supra note 62, at 4 . END FOOTNOTE
2. Policies and Procedures for the Design, Testing and Supervision of ATSs; Exchange Considerations
Taken as a whole, the ATS monitoring and supervision standards, ATS design and testing standards, ATS crisis management procedures standards, and ATS monitoring staff training standards inquired about in this Concept Release constitute a set of standards related to policies and procedures for firms operating ATSs. Existing rules require SDs and MSPs to ensure that their "use of trading programs is subject to policies and procedures governing the use, supervision, maintenance, testing, and inspection of the program," /93/ but there is no corresponding rule for FCMs or other market participants operating ATSs. Moreover, even when applied to SDs and MSPs, section 23.600(d)(9) does not have any prescriptive requirements related to supervision and testing and does not require formal review or approval of each firm's policies and procedures by an informed, independent party other than at the time of registration. /94/ As a consequence, there is no minimum amount of testing that SDs and MSPs or other market participants operating ATSs are required by the Commission to perform before deploying an algorithm or before re-deploying an algorithm that has been altered. Nor are there any minimum standards for training or sophistication in the areas of supervision, maintenance, and inspection of the ATS. /95/ Because of this, the Commission is interested in better understanding whether more standardized requirements, or clearer minimum standards, related to policies and procedures for firms operating ATSs would benefit the markets and the public. The policies and procedures relating to the design, testing and supervision of ATSs are summarized below, and addressed in greater detail in Section V, Appendix C.
FOOTNOTE 93 See 17 CFR 23.600(d)(9). END FOOTNOTE
FOOTNOTE 94 17 CFR 23.600(b)(4) requires SDs and MSPs to "furnish a copy of its written risk management policies and procedures to the Commission, or to a futures association registered under section 17 of the Act, if directed by the Commission, upon application for registration and thereafter upon request." END FOOTNOTE
FOOTNOTE 95 It is also possible that SDs and MSPs could fail to incorporate emerging industry best practices for managing operational risk of ATSs into their policies and procedures as effective risk management technology and practices are introduced to the market. END FOOTNOTE
The Commission requests public comment regarding the necessity for ATS development, change management and testing standards in CFTC-regulated markets. Potential benefits to such standards include ensuring that ATSs are designed and modified in an environment where there is no risk that the ATS could interfere with activity in or related to the live market and ensuring that appropriate personnel have approved changes and verified proper testing before a system is moved to the production environment. Standards concerning the retention and control of access to current and historical versions of source code may help to ensure that changes are only made by appropriate personnel and reviewable when necessary. Finally, audit trail material may assist regulators when investigating problems.
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