Comment Text:
February 11, 2014
Melissa D. Jurgens
Secretary of the Commission
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street N.W.
Washington, DC 20581
Re: CFTC Concept Release on Risk Controls and System Safeguards for Automated Trading Environments, RIN 3038-AD52
Dear Ms. Jurgens:
Thank you for the opportunity to present our comments regarding the Commodity Futures Trading Commission’s (CFTC) Concept Release on Risk Controls and System Safeguards for Automated Trading Environments.
Our comment address the relationship between the proposed regulation and quality management system standards. Although the Concept Release does not associate “market quality” directly with industry standards for quality management and systems engineering, it does note many operational concerns such as “quality metrics” (e.g. in question 89), “reliability” (e.g. question 90), and “controls” (e.g. question 102), which are the subject of quality standards. We would like to bring the work of the X9 D14 working group to your attention in this regard, as the working group is now in the process of developing a quality management system standard for automated trading under the working title AT 9000.
As you may know, the International Organization for Standardization (ISO) publishes industry-defined quality management system standards, such as most notably the generic ISO 9000 standard. ISO standards are globally recognized with over one million ISO 9000 certified firms worldwide. What gives ISO quality management certification so much credibility is its method of internal and external audit. Some industries have adapted ISO 9000 to meet their specific needs, including for example, aerospace (AS 9100), medical devices (ISO 13485), and food safety (ISO 22000). We believe their applications of ISO quality management system standards have (by and large) been successful at increasing the quality and safety of their respective industries, while reducing costs, facilitating international trade, and fostering global regulatory harmonization. We believe this model can provide the same benefits to the financial industry in the new age of automated trading.
AT 9000 will provide an industry-specific quality management system standard for automated trading, and is being developed in the X9 D14 working group of which we are members. The American National Standards Institute (ANSI) is the U.S. component of ISO. Accredited Standards Committee X9 is the component of ANSI tasked with overseeing development and maintenance of standards for financial services. Presently, X9 operates 4 technical subcommittees and 20 to 30 technical working groups that develop financial industry technical standards and guidelines. X9 is the USA Technical Advisory Group (TAG) to the International Technical Committee on Financial Services (TC68) under ISO. In this role X9 holds the U.S. vote on all ISO standards of TC 68 or its subcommittees SC2, SC4, and SC7. X9 has overseen the development of many technical standards used in the financial industry, and X9 is overseeing the AT 9000 working group, known officially as X9 D14. On December 3, 2012 representatives of the AT 9000 working group appeared before CFTC staff to discuss the nature of the project.
AT 9000 aims to address requirements for systems engineering and operation and control of trading systems, products and services for automated trading industry organizations (ATIOs), including trading firms, exchanges, independent software vendors, clearing members and broker/dealers. AT 9000 aims to serve three separate goals, helping ATIOs with:
1.) Satisfying their responsibility for trading safety;
2.) Satisfying regulatory requirements; and
3.) Achieving improved efficiency and effectiveness of systems, products, or services involved in automated trading.
The attached table lists some of the Concept Release questions that are under consideration for AT 9000 and explains how AT 9000 may address them. Should regulations stemming from the Concept Release go forward, we hope the final language will acknowledge industry-defined standards, such as AT 9000, where appropriate. Such initiatives capture evolving best practices and potentially represent the best way to ensure desired market quality and reliability for systems that are important to the functioning of financial markets.
Thank you and best regards,
Robert V. Binder
President
System Verification Associates
Chicago, IL
Ricky A. Cooper, Ph.D.
Assistant Professor of Finance
Stuart School of Business, Illinois Institute of Technology
Chicago, IL
Ben Van Vliet, Ph.D.
Assistant Professor of Finance
Stuart School of Business, Illinois Institute of Technology
Chicago, Illinois
