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 

Q & A – Supplemental Notice of Proposed Rulemaking on 

Regulation Automated Trading 

The U.S. Commodity Futures Trading Commission (Commission) has approved a supplemental notice of proposed 

rulemaking for Regulation AT (Supplemental). The Supplemental follows the Commission’s December 2015 

NPRM for Regulation AT, which proposed 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).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 proposes to amend and streamline certain requirements in 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 also 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.

1. How does the Supplemental NPRM modify Regulation AT’s 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’s 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 

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. 

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 

2. How does the Supplemental modify Regulation AT’s registration requirements for trading firms not

already registered with the Commission?

Regulation AT would require registration by certain market participants. Such market participants would be required to 

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. 

3. How does the Supplemental NPRM modify Regulation AT’s requirements regarding 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 raised by commenters, defines Algorithmic Trading Source Code, and revises the 

source code 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 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. 

4. How does the Supplemental modify Regulation AT’s other records requirements for AT Persons and

FCMs, and DCMs’ obligation to review such records?

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

reports containing information on the AT Persons’ 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 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 each DCM establish a program for 

effective periodic review of FCMs’ compliance with Regulation AT. Pursuant to the Supplemental , DCMs must also 

require FCMs to provide the DCMs with an annual certification attesting that the FCM complies with Regulation AT. 

5. Does the Supplemental NPRM address AT Persons’ use of third-party Algorithmic Trading Systems?

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

facilitate compliance with elements of Regulation AT. Such AT Persons may use a combination of certifications provided by 

the third-party, along with due-diligence by the AT Person, to demonstrate compliance, for example, with certain requirements 

related to the development and testing of Algorithmic Trading Systems.