By John Filar Atwood
CFTC Commissioner J. Christopher Giancarlo believes that proposed Regulation Automated Trading (Reg AT) could force many market participants to register for the first time with the CFTC as floor traders given its broad definition of “algorithmic trading.” In remarks at the American Cotton Shippers Association annual conference, he said regulators need to fight for end-users rather than inadvertently subject them to over-regulation.
Giancarlo said in his keynote address that cotton producers that use any type of automation with respect to futures trading—even something as simple as an automated Excel spreadsheet that facilitates trading—could be captured by Reg AT. He noted that if a firm is captured under the regulation, it will be forced to tie together all written communications concerning quotes, bids, offers, instructions, trading, and prices that lead to the execution of a transaction.
He urged industry participants to consider carefully the compliance and cost consequences of the Reg AT regulatory regime. Although the comment period on the proposal closed in March, Giancarlo believes commenters will get another chance to weigh in. The CFTC is holding a staff roundtable on the issue in June, he noted, and he expects that discussion to re-open the comment period and allow for further public input.
Position limits. Giancarlo also discussed the ongoing rulemaking on position limits, of which he has been openly critical. The 2013 proposal, which was the CFTC’s second attempt to impose a new federal position limits regime on 28 commodities, would impose federal regulatory edicts in place of everyday business judgments to manage risk, in his opinion.
He emphasized that he does support efforts to improve the position limits proposal by taking into account the concerns voiced by the agricultural, energy and end-user communities to make the rule workable. Correcting undue restrictions on bona-fide hedging is important to agricultural companies and energy producers, he said, and would help to alleviate some of his reservations with the rule.
Giancarlo believes the CFTC should update deliverable supply estimates for the 28 referenced commodities to replace old data used in the 2013 proposed rule. The Commission must work to encourage commercial enterprises to use advances in hedging practices to help keep America competitive in a global economy, in his view.
Success story. A recent example of a regulation that found the appropriate balance between protection and over-regulation is the changes the CFTC made to Rule 1.35, he said. The recordkeeping rule initially did not address the issues of feasibility and cost of compliance, in his opinion. However, it was revised to lessen the compliance and recordkeeping burden on end-users, and ultimately got the balance right, he said.
Giancarlo believes the CFTC must continuously try to avoid needless compliance costs because they are invariably passed through to higher prices for everyday consumer items. He expressed his hope that the Commission’s pending rule proposals will not needlessly impinge on the ability to hedge against plummeting commodity prices.