June 16, 2016 / 9:51 PM / 4 years ago

U.S. derivatives regulator rethinks algorithmic trading proposal

WASHINGTON (Reuters) - The U.S. derivatives regulator is rethinking parts of its proposal to regulate automated trading and looking into whether the rule could affect too many people, it said on Thursday.

The Commodity Futures Trading Commission, announcing it had reopened the public comment period on the rule through June 26, also said it is considering who should mitigate the risks of algorithmic trades and how the rule would apply when traders purchase their algorithms and systems. It said it asked how to define “source code” and what software and hardware should be included within the term “Algorithmic Trading system.”

The CFTC held an all-day roundtable last Friday with members of the financial services industry to examine the thornier issues in the proposal. Introduced in November, the rule is aimed at the rapidly changing world of automated trading and, specifically, the risks involved in algorithmic trading, in which computers place orders at lightning-fast speed.

It said that some comment letters said the proposal “could impact more market participants than appropriate” and others had suggested giving merchants the responsibility for implementing risk controls on their customers’ orders.

It also asked if there should be some sort of certification on the safety and soundness of third-party systems.

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