Comment Text:
RE: Re: Request for Comment on 24/7 Trading on DCMs and SEFs – Risk Disclosures for Retail Participants
May 22, 2025
I am writing in response to the Commodity Futures Trading Commission’s request for comment regarding potential issues associated with designated contract markets (DCMs) and swap execution facilities (SEFs) offering trading on a 24/7 basis. As a recent graduate from the Georgetown University Law Center in Washington, D.C., I am enthusiastic to have an opportunity to apply what I've learned in the classroom to the Commission's rule-making and comment process.
Speaking from my limited knowledge and experience, I write to urge the Commission to give thoughtful consideration as to whether current customer risk disclosures, in particular those aimed at retail market participants under Regulation 1.55 (b), are sufficient address the unique risks introduced by 24/7 trading. Risk disclosures are a central component of the CFTC's framework for customer protection, and are integral to the Commission's mission to uphold the integrity of U.S. commodities and derivatives markets.
Under CFTC Regulation 1.55, futures commission merchants (FCMs) must provide clear and comprehensive disclosures to customers to ensure they understand the material risks of derivatives trading. Currently, Regulation 1.55 (b) provides the following example disclosure:
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Risk Disclosure Statement
The risk of loss in trading commodity futures contracts can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should be aware of the following points:
(1) You may sustain a total loss of the funds that you deposit with your broker to establish or maintain a position in the commodity futures market, and you may incur losses beyond these amounts. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the required funds within the time required by your broker, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account.
(2) The funds you deposit with a futures commission merchant for trading futures positions are not protected by insurance in the event of the bankruptcy or insolvency of the futures commission merchant, or in the event your funds are misappropriated.
(3) The funds you deposit with a futures commission merchant for trading futures positions are not protected by the Securities Investor Protection Corporation even if the futures commission merchant is registered with the Securities and Exchange Commission as a broker or dealer.
(4) The funds you deposit with a futures commission merchant are generally not guaranteed or insured by a derivatives clearing organization in the event of the bankruptcy or insolvency of the futures commission merchant, or if the futures commission merchant is otherwise unable to refund your funds. Certain derivatives clearing organizations, however, may have programs that provide limited insurance to customers. You should inquire of your futures commission merchant whether your funds will be insured by a derivatives clearing organization and you should understand the benefits and limitations of such insurance programs.
(5) The funds you deposit with a futures commission merchant are not held by the futures commission merchant in a separate account for your individual benefit. Futures commission merchants commingle the funds received from customers in one or more accounts and you may be exposed to losses incurred by other customers if the futures commission merchant does not have sufficient capital to cover such other customers' trading losses.
(6) The funds you deposit with a futures commission merchant may be invested by the futures commission merchant in certain types of financial instruments that have been approved by the Commission for the purpose of such investments. Permitted investments are listed in Commission Regulation 1.25 (17 CFR 1.25) and include: U.S. government securities; municipal securities; certain money market funds; certain foreign sovereign debt; and U.S. Treasury exchange-traded funds. The futures commission merchant may retain the interest and other earnings realized from its investment of customer funds. You should be familiar with the types of financial instruments that a futures commission merchant may invest customer funds in.
(7) Futures commission merchants are permitted to deposit customer funds with affiliated entities, such as affiliated banks, securities brokers or dealers, or foreign brokers. You should inquire as to whether your futures commission merchant deposits funds with affiliates and assess whether such deposits by the futures commission merchant with its affiliates increases the risks to your funds.
(8) You should consult your futures commission merchant concerning the nature of the protections available to safeguard funds or property deposited for your account.
(9) Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market reaches a daily price fluctuation limit (“limit move”).
(10) All futures positions involve risk, and a “spread” position may not be less risky than an outright “long” or “short” position.
(11) The high degree of leverage (gearing) that is often obtainable in futures trading because of the small margin requirements can work against you as well as for you. Leverage (gearing) can lead to large losses as well as gains.
(12) In addition to the risks noted in the paragraphs enumerated above, you should be familiar with the futures commission merchant you select to entrust your funds for trading futures positions. The Commodity Futures Trading Commission requires each futures commission merchant to make publicly available on its Web site firm specific disclosures and financial information to assist you with your assessment and selection of a futures commission merchant. Information regarding this futures commission merchant may be obtained by visiting our Web site, www.[Web site address].
ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FUTURES TRADING WHETHER FOREIGN OR DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS, YOU SHOULD BE AWARE OF THE FOLLOWING ADDITIONAL RISKS:
(13) Foreign futures transactions involve executing and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally “linked” to a domestic exchange, whereby a trade executed on one exchange liquidates or establishes a position on the other exchange. No domestic organization regulates the activities of a foreign exchange, including the execution, delivery, and clearing of transactions on such an exchange, and no domestic regulator has the power to compel enforcement of the rules of the foreign exchange or the laws of the foreign country. Moreover, such laws or regulations will vary depending on the foreign country in which the transaction occurs. For these reasons, customers who trade on foreign exchanges may not be afforded certain of the protections which apply to domestic transactions, including the right to use domestic alternative dispute resolution procedures. In particular, funds received from customers to margin foreign futures transactions may not be provided the same protections as funds received to margin futures transactions on domestic exchanges. Before you trade, you should familiarize yourself with the foreign rules which will apply to your particular transaction.
(14) Finally, you should be aware that the price of any foreign futures or option contract and, therefore, the potential profit and loss resulting therefrom, may be affected by any fluctuation in the foreign exchange rate between the time the order is placed and the foreign futures contract is liquidated or the foreign option contract is liquidated or exercised.
THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF THE COMMODITY MARKETS.
I hereby acknowledge that I have received and understood this risk disclosure statement.
Date
Signature of Customer
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While comprehensive, this language in Regulation 1.55 (b) might not capture circumstances where 24/7 trading may amplify risks already identified in the disclosure, for example:
Paragraph (1) warns customers that their positions may be liquidated at a loss if they fail to meet a margin call, and that losses can exceed deposited funds. However, the Paragraph does not address the scenario where margin calls or liquidations occur during overnight or weekend hours, when retail customers are less likely to be monitoring markets, available to transfer funds, or in a position to react. "Off hours” transactions can catch retail participants off guard.
Paragraph (9) notes that it may be difficult or impossible to liquidate a position under certain market conditions, such as price limit moves. 24/7 trading may introduce new periods of illiquidity or volatility, especially weekend hours when market participation may be more sparse and customer support might be less responsive.
Paragraph (11) addresses the dangers of leverage, a risk that can be exacerbated by 24/7 access. Continuous market exposure might increase the likelihood that leveraged positions are effected by events outside the customer’s waking or working hours, inn particular where traders cannot monitor their positions as effectively over weekends or non-waking hours.
Paragraph (12) directs customers to review firm-specific disclosures, but does not contemplate the need for firms to provide additional information about the operational implications of trading during non-business hours, which could include customer service availability, margin call processing, or policies related to off hours order execution. Customers might benefit from a disclosure that directs them to consider a firm's policies specific to operating on a 24/7 basis.
Regulation 1.55 (b) presumes a trading schedule that allows customers time of take a step back from their trading, assess their positions, and take risk into consideration -- in simpler terms, to "sleep on it". 24/7 trading might deprive customers from the benefit of natural market pauses, which could warrant more appropriate disclosures with respect to the above risks that 24/7 trading presents.
Accordingly, I respectfully encourage the Commission to consider whether existing disclosure obligations under Regulation 1.55 are sufficient to make the risks of market movements and position exposure during non-trading hours apparent to retail users; and to consider whether additional disclosures ought to be required to address unique risks arising from a market operating on a 24/7 basis.
Thank you for the opportunity to participate in the Commission's rule-making process. I am looking forward to the Commission's continued efforts to encourage innovation in U.S. commodities and derivatives markets and to ensure these market's participants are protected from undue risks.
Respectfully submitted,
Andrew L. Bellah
