The industry’s sense of urgency concerning Reg AT is dropping, because little action is expected to put its rules in effect in the US following the May 1 ending of the comment period on the regulation.
Reg AT, the US Commodity Futures Trading Commission’s Regulation Automated Trading, contains risk and transparency provisions for automated trading. The CFTC issued the proposal in November and later extended the comment period beyond January to May.
“Not many people are expecting a revised proposal to come out quickly,” says Aisha Dudhia, deputy head of research at JWG, a financial regulation consultancy. “Considering the political situation in the US, people believe it may still be awhile because they’re not sure what will happen. But people do expect revised changes based on the proposal.”
JWG organised a Trade Surveillance Special Interest Group, comprised of about 35 people representing buy- and sell-side firms, and data vendors, which met last week to consider potential Reg AT issues. “They are concerned that Reg AT might not go ahead, so at the moment it’s not so much of a priority for them,” Dudhia says, describing the sentiment in the group.
However, there are some similarities between Reg AT, MiFID II and Germany’s High Frequency Trading Act, which has firms looking at Reg AT in conjunction with those laws. MiFID II takes effect in January, and the German law has been in effect since 2013.
“Where a regulation ‘gold plates’ — where it has the highest criteria or requirements, that’s the regulation they are following for that specific element,” says Dudhia. “Firms are still doing analysis to determine which of these three ‘gold plates’ on certain requirements. In general, MiFID II is the most prescriptive, but some elements of Reg AT are a bit different.”
Regardless of whatever restrictions Reg AT places on automated trading, automation requires careful thought and consideration, beyond just compliance concerns, as Nirvana Farhadi, global head of financial services regtech, risk and regulatory compliance at Hitachi Data Systems, explains.
“Firms must ask how mature the technology is to avoid getting ‘garbage in/garbage out’ results,” she says. “Automation is a process that might not necessarily be possible to link on top of your legacy systems. Making it fresher, flexible and agile means looking more strategically at the long-term areas of what they need to achieve. Platforms and infrastructure within an organisation need to be more agile and flexible to accommodate automation.”