Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

Commodity Futures Trading Commission 

Office of Public Affairs 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

www.cftc.gov

November 4, 2016 

Fact Sheet - Supplemental Notice of Proposed Rulemaking on 

Regulation Automated Trading 

On December 17, 2015, the U.S. Commodity Futures Trading Commission (Commission) published a notice of 

proposed rulemaking (NPRM) proposing a series of risk controls, transparency measures, and other safeguards to 

enhance the safety and soundness of automated trading on all designated contract markets (DCMs) (collectively, 

Regulation Automated Trading).1 The Commission’s proposed rules in Regulation AT reflect a comprehensive 

effort to reduce risk and increase transparency in algorithmic order origination and electronic trade execution on all 

U.S. futures exchanges. 

The supplemental notice of proposed rulemaking for Regulation AT (Supplemental) amends and streamlines certain 

requirements of the NPRM. Notably, the Supplemental revises the NPRM’s proposed risk control framework to 

concentrate pre-trade risk controls at a minimum of two levels rather than three. In addition, the Supplemental 

establishes a threshold of existing and new Commission registrants that are considered “AT Persons” under 

Regulation AT by adding a minimum trading volume test to the criteria for determining who is an AT Person.

The Supplemental addresses algorithmic trading source code through new provisions regarding recordkeeping and 

access. Specifically, the Supplemental proposes that access to source code by the Division of Market Oversight be 

limited to special calls issued by the Commission itself.

The Supplemental also proposes additional amendments to the NPRM, as described below. The Commission 

notes, however, that the proposed rules in the NPRM remain under active consideration unless specifically 

amended in the Supplemental. The Supplemental will be published in the Federal Register and open for a 60-day 

public comment period.

Proposed Risk Control Framework.

The NPRM for Regulation AT proposed placing risk controls at three levels: the AT Person, the FCM and the DCM. In the 

Supplemental, the Commission is proposing to replace the three-level risk control structure with a two-level structure. Risk 

controls would be set at the levels of (1) the AT Person or its FCM;2 and (2) the DCM. Pursuant to the Supplemental twolevel structure, an AT Person would have the option of delegating compliance with pre-trade risk control requirements to its 

FCM(s), with the agreement of such FCM(s). 

In the NPRM, the Commission also proposed requiring risk controls only with respect to the Algorithmic Trading of AT 

Persons. Recognizing comments, the Supplemental NPRM expands risk control requirements to also encompass 

Electronic Trading,3including Electronic Trading at the FCM and DCM levels.4 

1

 Regulation Automated Trading, Proposed Rule, 80 FR 78824 (Dec. 17, 2015). 

2

The NPRM’s risk control requirements applied to “clearing member” FCMs. The Supplemental NPRM revises such requirements to 

apply to “executing” FCMs.

3

“Electronic Trading” is defined in Supplemental proposed § 1.3(aaaaa). The Commission notes that Electronic Trading was not 

defined in the NPRM. 

4

Pursuant to the Supplemental NPRM’s proposed rules, AT Persons’ risk control obligations would be expanded to include not only 

Algorithmic Trading, but also Electronic Trading. 
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

The NPRM also proposed requiring that pre-trade risk controls be set at the level of each AT Person or market participant, or 

other more granular levels as the AT Person, FCM or DCM determined appropriate. The Supplemental revises the risk 

control provisions to provide AT Persons, FCMs and DCMs greater flexibility regarding the level at which pre-trade controls 

must be set. 

Registration of certain market participants not already registered with the Commission as “AT Persons”.

Regulation AT would require registration of certain market participants. Such market participants would be required register 

as “floor traders,” as defined in Supplemental proposed § 1.3(x)(1)(iii) (“New Floor Traders”), and consistent with other 

requirements, would also be required to become members of a registered futures association (“RFA”). Together with certain 

existing registrants, New Floor Traders would be considered AT Persons and be subject to all associated requirements of 

Regulation AT. 

Pursuant to the NPRM, the proposed registration criteria for New Floor Traders were that such persons be engaged in (1) 

proprietary, (2) Algorithmic Trading (3) through Direct Electronic Access (“DEA”) on a DCM. The Supplemental retains 

these requirements but also incorporates a volume-based quantitative test for registration as a New Floor Trader. The 

Commission also proposes to apply this same volume-based quantitative test to existing registrants and persons otherwise 

required to register with the Commission to determine whether they are AT Persons. 

Algorithmic Trading Source Code.

Regulation AT requires that algorithmic trading source code be preserved and made available to the Commission when 

necessary. The NPRM required that AT Persons make source code available for inspection in accordance with the 

Commission’s general recordkeeping requirements. 

The Supplemental acknowledges concerns regarding algorithmic trading source code5 and revises these provisions extensively. 

Algorithmic Trading Source Code and related records are required to be preserved, but preservation and access obligations 

would be set forth in provisions separate from the Commission’s general recordkeeping rules. Notably, the Supplemental 

NPRM provides that the Commission would have access to Algorithmic Trading Source Code only via a subpoena or a 

special call approved by the Commission itself. In addition, the Supplemental provides that the Commission would also have 

access, via a subpoena or special call approved by the Commission, to (a) records that track changes to an AT Person’s 

Algorithmic Trading Source Code; and (b) log files that record the activity of an AT Person’s Algorithmic Trading system.

Other AT Person and FCM Records; DCMs’ Review of Compliance with Regulation AT.

In the NPRM, the Commission proposed requiring that each AT Person provide the DCMs on which they operate with 

annual reports containing information on the AT Person’s compliance with requirements concerning risk controls. The 

NPRM further would have required DCMs to establish a program for effective review and evaluation of such reports. The 

Supplemental eliminates DCMs’ obligation to review annual compliance reports. In place of such obligation, the 

Supplemental requires that each DCM establish a program for effective periodic review of AT Persons’ compliance with 

Regulation AT. The Supplemental also provides that DCMs must require AT Persons to provide the DCMs with an annual 

certification attesting that the AT Person complies with Regulation AT. 

Similarly, the Supplemental eliminates the obligation proposed in the NPRM that DCMs review annual compliance reports 

provided by FCMs. The Supplemental replaces such obligation with a requirement that that each DCM also establish a 

program for effective periodic review of FCMs’ compliance with Regulation AT. Pursuant to the Supplemental NPRM, each 

DCM must also require FCMs to provide the DCM with an annual certification attesting that the FCM complies with 

Regulation AT. 

5

“Algorithmic Trading Source Code” is defined in Supplemental proposed § 1.3(ccccc). The Commission notes that source code was 

not defined in the NPRM. 
Commodity Futures Trading Commission ♦ Office of Public Affairs ♦ 202-418-5080 

AT Persons’ Use of Third-Party Systems, and Other Regulation AT Provisions.

The Supplemental provides AT Persons who use third-party systems as part of their Algorithmic Trading with options to 

facilitate their compliance with elements of Regulation AT. Finally, the Supplemental also discusses a number of changes to 

certain defined terms proposed in the NPRM, as well as other provisions that the Commission is considering in response to 

comments from market participants. These include limiting the scope of “Algorithmic Trading Compliance Issue,” 

“Algorithmic Trading Disruption,” and “Algorithmic Trading Event.”