U.S. futures regulator targets cyber security, automated trading

WASHINGTON (Reuters) - The U.S. Commodity Futures Trading Commission plans to finalize rules on cyber security, automated trading and position limits this year, as it tidies up final requirements related to the Dodd-Frank financial reform law, its chairman said on Thursday.

U.S. Commodity Futures Trading Commission (CFTC) Chair Timothy Massad is interviewed at the Reuters Financial Regulation Summit in Washington, US May 19, 2016. REUTERS/Gary Cameron

The CFTC has been examining the thoroughness of cyber security at exchanges and other entities it oversees, and uncovered unspecified deficiencies at some, said Chairman Timothy Massad at the Reuters Financial Regulation Summit.

It is encouraging boards of directors to scrutinize technology practices and policies more closely, he added.

“Cyber is the biggest threat facing financial markets today,” he said, echoing comments earlier in the week from Securities and Exchange Commission Chair Mary Jo White.

Cyber security has become an increasingly pressing issue for a wide range of entities in recent years. Big banks, retailers and payment processors have battled breaches or attempted breaches into customer data. A few months ago, a Los Angeles hospital said it paid hackers $17,000 in ransom to regain control of its computer systems.

Even regulators grapple with cyber incursions, as evidenced by the recent heist involving the Federal Reserve Bank of New York and Bangladesh’s central bank.

The CFTC has been monitoring its own systems for cyber threats, Massad said, noting the agency received one of the top ratings for its security practices from a government monitor.

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Technology can present other risks in the form of automated trading, which represents 60 to 70 percent of the markets the CFTC regulates, Massad said.

The commission proposed a rule in November requiring some proprietary traders to register with it and setting standards for algorithmic trading systems. It hopes to have the rule finalized by year end, he said.

Massad also said the CFTC has focused on catching bad actors who try to “spoof” markets by putting in bids for trades they intend to cancel. Its several enforcement cases on spoofing have acted as a deterrent, but the agency is still monitoring markets closely for similar activity, he said.

The commission also aims to finish work on limiting the positions that traders can hold in commodity markets as a way to head off oil and gas hedging abuse.

In February, the process hit a bump when an industry-led panel told the commission the limits would only hurt investors. With oil prices slowly recovering from recent historic lows, the urgency to approve the limits may be easing, as well, but the CFTC remains committed to addressing excessive speculation and market manipulation, Massad said.


The CFTC has spent almost six years writing and implementing new financial regulations stemming from Dodd-Frank, including the creation of clearinghouses for the now-$181 trillion derivatives market. Massad was asked what he thought of comments by politicians who want the law dismantled.

In short, Massad said, that idea does not make sense.

“So, we’re going to go back to the bilateral opaque dark world of swaps without central clearing?” he asked. “We’re going to, what, bring back the Office of Thrift Supervision? Are we going to lower deposit insurance back down to $100,000? Are we going to eliminate the orderly liquidation authority so the federal government can bail out institutions? I mean, come on. If you go through the specifics, it doesn’t make any sense.”

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Reporting by Lisa Lambert in Washington, additional reporting by Sarah N. Lynch; Writing by Lauren Tara LaCapra; Editing by Chizu Nomiyama and Meredith Mazzilli