The Commission has also adopted rules related to trading practices, including trading in automated environments. In July 2011, the Commission adopted final rules codified in 17 CFR Part 180 that, among other things, (i) broadly prohibit manipulative and deceptive devices, i.e., fraud and fraud-based manipulative devices and contrivances employed intentionally or recklessly, regardless of whether the conduct in question was intended to create or did create an artificial price; and (ii) codify the Commission's long-standing authority to prohibit price manipulation by making it unlawful for any person, directly or indirectly, to manipulate or attempt to manipulate the price of any swap, or of any commodity in interstate commerce, or for future delivery on or subject to the rules of a registered entity. Further, section 747 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") /3/ amended the Commodity Exchange Act ("CEA" or "Act") to make it unlawful for any person to engage in disruptive trading practices, and the Commission has provided guidance on the scope and application of the new statutory prohibitions. The Commission's measures to date are summarized in greater detail in section II.B., below. With respect to these measures and others discussed in this Concept Release, the Commission requests public comment regarding any additional steps, guidance or rulemaking that it should undertake.
FOOTNOTE 3 See Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Public Law 111-203, 124 Stat. 1376 (2010). END FOOTNOTE
Derivatives market participants, including DCMs, FCMs, clearing members and others, have themselves taken a number of steps to manage risks associated with automated trading. The Commission acknowledges these efforts, and, through this Concept Release, seeks public comment on the extent to which measures already in place may be sufficient to safeguard markets in automated trading environments. In particular, section III below summarizes relevant risk controls implemented by one or more market participants; requests comment regarding the extent of their implementation to date; and seeks input regarding whether existing controls would benefit from additional granularity or regulatory standardization.
A. Design of Concept Release and Request for Comments
This Concept Release provides an overview of the automated trading environment, including its principal actors, potential risks, and preventative measures designed to promote safe and orderly markets. /4/ The Concept Release was informed by controls already in use today by one or more market participants or exchanges, and best practices, recommendations and concepts developed by the CFTC's Technology Advisory Committee ("TAC"); the Futures Industry Association's ("FIA") Principal Traders Group and Market Access Working Group; the International Organization of Securities Commissions ("IOSCO"); the European Securities and Markets Authority ("ESMA"); and by existing CFTC regulatory requirements. It begins with an overview of automated trading, including the development of automated order generation and execution systems; advances in high-speed communication networks; the growth of interconnected automated markets; the changed role of humans in modern markets; and a discussion of recent disruptive events in automated trading environments. The Concept Release then addresses these developments through a series of (1) pre-trade risk controls; (2) post-trade reports and other post-trade measures; (3) system safeguards; and (4) additional protections (collectively, "risk controls") that could be implemented by one or more categories of Commission registrants or other market participants.