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CFTC’s Massad Recaps 2016

Chairman says Reg AT is next big item on the list to finish before yearend.

The futures industry’s regulator had several initiatives in 2016 but the top items were tackling the issue of cybersecurity, margin and the upcoming finalization of automated trading rules.

On cybersecurity, the CFTC adopted rules for the exchanges, clearing houses, trading platforms and trade repositories that require more testing of platforms and systems to make them more secure.

“That’s probably the biggest single threat to financial stability in our markets today,” said Timothy Massad, chairman of the Commodity Futures Trading Commission, who spoke with John Lothian News at the FIA Expo 2016 in Chicago last week.

The CFTC also moved to put in margin requirements for participants, and have harmonized the rules internationally, Massad said.

CFTC also has been pushing in the automated trading space with its Reg AT proposal, which would put a new set of requirements on firms that connect to the markets. Massad said he hopes to finalize the rule “as we go into 2017.”

“There are firms that are responsible for a lot of the volume on our markets that actually are not registered with us in any way,” Massad said. “And we want to make sure firms that are heavily engaged in automated trading just do adequate testing and have good pre-trade risk controls.”

For Massad, the industry is coming to the end of the Dodd-Frank Act rules from the CFTC. The focus now is on “fine tuning” those rules and making sure its all working well.”

As for how the industry is now shaping up under the new regulatory structure, Massad is optimistic about where the derivatives industry is now.

“I think you gotta step back and ask yourself what are these markets really for?” Massad said. “They are for price discovery and for the ability of commercial participants to hedge and transfer risk. And they do that function very well. We gotta make sure they continue to do that function.”

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Kharouf is CEO of John J. Lothian & Co. and editor-in-chief of John Lothian News (JLN). He edits the John Lothian Newsletter, MarketsWiki and MarketsReformWiki.