Regulation Automated Trading

Regulation Automated Trading (‘RegAT’) is a US-based regulation that seeks to create a more defined risk and trading regime for all futures contracts traded algorithmically on exchanges.

Currently in the consultation phase, the initial Notice of Proposed Rulemaking was voted unanimously into effect by the Commodities and Futures Trading Commission (CFTC) on 24th November 2015. A second consultation (aka the Supplemental Notice on Regulation Automated Trading) was announced by the CFTC on 4th November 2016.

Futures exchanges, known as Designated Contract Markets (DCMs), are registered entities with the CFTC that serve as boards of trade for futures and options on any underlying commodity, index or instrument. Under RegAT DCMs will be required to support risk controls and compliance checks for all users accessing their platforms.

The regulation is targeted at the exchange member entities that connect to these markets – the Futures Commission Merchants (FCMs) and Introducing Brokers (IBs) providing automated trading and clearing services to non-members through Direct Electronic Access (DEA).

Under the draft rules, non-member traders, and other individuals performing “automated trading” on their behalf, will be defined as “AT Persons” and subject to a variety of risk controls, registration requirements and testing regimes in order to be permitted to continue trading futures via algorithmic means.

The proposals seek to introduce a number of high-level changes to the way futures trading operates in the US, including:

  • Introduction of new definitions for algorithmic trading, AT Persons and DEA in the US futures markets
  • Pre-trade risk controls for all AT Persons, FCMs and DCMs for automated trades, including cancellation systems and execution limits
  • Registration requirements for direct connectivity to US-based FCMs and exchanges by all AT Persons, regardless of sophistication or size
  • Mandatory exchange controls for self-match prevention, cancel on disconnect and market maker regimes
  • Mandatory testing environments and algorithm source code repositories for all automated trading systems

The first consultation period closed on 16th March 2016. The second consultation, on the Supplemental Notice, is likely to remain open for comments until January 2017.

Last updated 14th November 2016

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