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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.
The Supplemental provides AT Persons who use third-party systems as part of their Algorithmic Trading with options to facilitate their compliance with elements of Regulation AT. Finally, the Supplemental also discusses a number of changes to certain defined terms proposed in the NPRM, as well as other provisions that the Commission is considering in response to comments from market participants. These include limiting the scope of “Algorithmic Trading Compliance Issue,” “Algorithmic Trading Disruption,” and “Algorithmic Trading Event.”
In a statement regarding the approval of Supplemental Proposal to Automated Trading Regulation, Chairman Timothy Massad said:
“Our proposal is designed to minimize the risk of disruption and other problems that can be caused by algorithmic trading, and to make sure we have the tools to deal with those problems should they occur. It requires reasonable risk controls, using a principles-based approach that would codify many industry best practices. But it does not prescribe the parameters or limits of such controls, because we know how diverse market participants can be, and we believe they are the ones who should determine those specifics. It requires testing and monitoring of algorithms. It requires the preservation of source code and other records — the equivalent of the records that those trading at human speed have preserved for years. And it ensures that we would have access to such records when necessary, just as for years we have reviewed the records of traders at human speed.”